The S&P/TSX Composite Index is down, US stock markets are also down in choppy trading

TORONTO – Canadian and US markets came under pressure again Thursday after the Federal Reserve’s interest rate decision the previous day indicated more rate hikes, and economic pain, ahead.

TORONTO – Canadian and US markets came under pressure again Thursday after the Federal Reserve’s interest rate decision the previous day indicated more rate hikes, and economic pain, ahead.

“Markets continue to digest the full implications of the Fed’s decision regarding the outlook for higher versus longer interest rates,” said Todd Matina, chief economist at McKinsey Investments.

On Wednesday, the US Federal Reserve raised its key interest rate by three-quarters of a percentage point to a target of between three and 3.25 percent, and indicated it could rise to nearly 4.4 percent by the end of the year.

At a news conference after the announcement, Federal Reserve Chairman Jerome Powell warned that taming inflation could mean slower growth, higher unemployment and possibly a recession.

“The chances of a quiet landing are likely to diminish,” Powell said.

Matina said the stark warning sent bond yields up sharply on Thursday as investors digested the fallout from Powell’s comments.

“The Fed really admitted yesterday that it was willing to pay the real costs in terms of production and even jobs in order to bring inflation back under control. So we are seeing some of that play out in the markets today, including the stock markets, which are also down today.”

The S&P/TSX Composite Index closed down 181.86 points, or 0.95 percent, at 19,002.68.

In New York, the Dow Jones Industrial Average closed down 107.10 points at 30,076.68. The S&P 500 lost 31.94 points to 3,757.99, while the Nasdaq Composite fell 153.38 points to 11,066.81.

Growth stocks were particularly under pressure, with TSX’s IT index down 2.61 percent, including Shopify Inc. It is down 6.26 percent, while the health care heavyweight index of cannabis is down 2.17 percent.

“Tech and growth stocks are driving the sell-off today, as opposed to industrial companies,” Matina said. “That kind of makes sense because stocks that are more sensitive to growth tend to be sensitive to changes in long-term interest rates, mainly because their future earnings are expected to be long-term.”

The losses were fairly broad, with the S&P/TSX energy index down 1.8 percent, and the financial sector down 0.69 percent.

Matina said the uncertainty weighing on growth prospects also led to more market volatility during the course of the year.

“Intraday volatility has gone up in recent weeks. We’ve seen more intraday volatility, especially in stocks.”

The prospect of higher US interest rates and lower growth has also put continued pressure on the Canadian dollar. The Canadian dollar traded at 74.18 US cents, compared to 74.64 US cents on Wednesday.

The Canadian currency is falling in part because inflation came in below expectations in the last reading, while in the US it surprised to the upside.

“Inflation trends are starting to diverge between Canada and the United States,” Matina said. “So the outlook for a Bank of Canada rate hike is starting to look less optimistic than the Fed, which is facing more inflationary momentum at the moment.”

The November crude oil contract rose 55 cents to $83.49 per barrel and the October natural gas contract rose 69 cents to $7.09 per million British thermal units.

The December gold contract rose $5.40 at $1,681.10 an ounce, and the December copper contract settled at $3.47 a pound.

This report was first published by The Canadian Press on September 22, 2022.

Companies in this story: (TSX: GSPTSE, TSX: CADUSD = X)

Canadian Press


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