Canada's main stock index lost 100 points Thursday, led lower by metals, utilities and financials, while U.S. equities also declined amid continued tightening in the bond market.
U.S. Federal Reserve chair Jerome Powell maintained his hawkish tone in a speech on Thursday, warning that persistent economic strength could warrant more interest rate hikes.
“Many forecasts called for the U.S. economy to be in recession this year. Not only has that not happened; growth is now running for this year above its longer-run trend. So that’s been a surprise,” Powell said at the Economic Club of New York.
However, he noted that bond yields, which have been rising and putting pressure on equities, are helping the Fed in its bid to curb stubborn inflation.
Ten-year U.S. Treasury yields hit 4.99 per cent before easing Thursday.
“That's creating some tighter conditions,” said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.
The S&P/TSX composite index closed down 101.89 points at 19,348.81.
In New York, the Dow Jones industrial average was down 250.91 points at 33,414.17. The S&P 500 index was down 36.60 points at 4,278.00, while the Nasdaq composite was down 128.13 points at 13,186.13.
Despite the stern rhetoric from Powell, Archibald thinks there’s a good likelihood the Fed is done hiking.
“There's no question that you're starting to see these rates have an effect on consumers,” he said.
The question now is how long rates will remain elevated for, he added.
Powell will continue to beat this drum for a while, Archibald said, in an effort to control expectations and to leave the door open in case the economy surprises to the upside.
“If they need to, they’ll raise rates again.”
The Bank of Canada, which has its rate decision scheduled for next week, is in a similar position, said Archibald.
Meanwhile, U.S. companies continued to report a mixed batch of earnings for the third quarter.
Tesla reported weaker results than expected, and its share price closed down more than nine per cent. on Thursday.
Netflix was an outlier, with its stock closing up more than 16 per cent after reporting stronger subscriber growth than expected.
The Canadian dollar traded for 72.91 cents UScompared with 73.07 cents US on Wednesday.
Uncertainty over the escalating Israel-Hamas war sent commodity prices higher, said Archibald. The price of oil kept marching back towards US$90 per barrel Thursday.
The December crude contract was up US$1.10 at US$88.37 per barrel and the November natural gas contract was down 10 cents at US$2.96 per mmBTU.
The December gold contract was up US$12.20 at US$1,980.50 an ounceand the December copper contract was up a penny at US$3.60 a pound.
-- With files from The Associated Press
This report by The Canadian Press was first published Oct. 19, 2023.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Rosa Saba, The Canadian Press
