Canada’s main stock index lost almost 160 points on Monday, weighed down by weakness in energy stocks, while U.S. markets also fell, led by a 1.8 per cent drop on the Nasdaq.
Markets fell in a broad-based selloff led by rate-sensitive sectors as investors continued their recent risk-off trading, said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.
The S&P/TSX composite index closed down 159.79 points at 21,740.20.
In New York, the Dow Jones industrial average was down 248.13 points at 37,735.11. The S&P 500 index was down 61.59 points at 5,061.82, while the Nasdaq composite was down 290.08 points at 15,885.02.
There are several things weighing on markets right now, including the ongoing recalibration of interest rate expectations south of the border, said Archibald.
Last week, markets reacted negatively to stronger-than-expected U.S. inflation data and pared back their expectations for rate cuts in 2024. That continued
Monday after a stronger-than-expected retail sales report for March.
“The consumer in the U.S. looks to still be in a very, very healthy position. The U.S. economy looks quite solid,” said Archibald.
As a result, bond yields are moving higher, he said.
“So it really calls into question … whether or not rate cuts are going to happen (in 2024), and when those are going to happen.”
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If the data continues to come in stronger than expected, “that’s not an environment where the Fed needs to cut rates,” he added.
But Archibald said with U.S. equity markets up significantly from the start of the year, the correction over the past several trading days isn’t an ominous sign so much as some profit-taking.
Earnings season could change that, he added, but so far the reports from U.S. companies have been good overall. Goldman Sachs, M&T Bank and Charles Schwab all reported earnings on Monday and saw their share prices rise despite the market’s downward turn.
More U.S. earnings will roll in this week, while in Canada, Tuesday will bring fresh inflation data and the federal budget. Economic data expected out of China could also affect commodities markets, said Archibald.
Escalating tension in the Middle East after Iran attacked Israel has put the market on edge as well, said Archibald.
“Uncertainty is usually met with selling, and that’s certainly what we’re seeing today,” he said, though he added that a morning selloff in gold and energy recovered throughout the trading day.
The Canadian dollar traded for 72.65 cents US compared with 72.64 cents on Friday.
The May crude oil contract was down 25 cents US at US$85.41 per barrel and the May natural gas contract was down eight cents at US$1.69 per mmBTU.
The June gold contract was up US$8.90 at US$2,383 an ounce and the May copper contract was up 12 cents at US$4.38 a pound.
— With files from The Associated Press
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