TSX Composite is in correction territory after experiencing its second worst day in 2022

The main Canadian stock index moved into correction territory to start the trading week as hot US inflation accelerated fears of a rate hike this week that could help push the US economy into recession.

The S&P/TSX Composite Index had its second worst day of the year, closing down 532.26 points, or 2.6 percent, to 19742.56, after dropping nearly 672 points in previous trading.

US stock markets suffered larger declines as the S&P 500 joined the Nasdaq in bear market territory by dropping more than 20 percent from its recent highs, while the Dow Jones Industrial Average, like the TSX, was in correction territory with a drop of 10 per cent.

In New York, the Dow Jones index lost 876.05 points to 30,516.74. The S&P 500 fell 151.23 points to 3749.63, while the Nasdaq fell 530.79 points, or 4.7 percent, to 10809.23.

Markets continued Friday’s moves lower after US inflation data for May showed no signs of stabilizing by reaching a 40-year high of 8.6 percent, higher than economists had expected.

This establishes an expectation that the US Federal Reserve will announce a 75 basis point interest rate increase on Wednesday to tackle inflation, up from the previous forecast of a 50 basis point increase. The base point is one hundredth of a percent.

“This obviously prompts investors to take a more cautious approach in how they think about valuations and how they think about the challenging business environment ahead,” said Ryan Crowther, portfolio manager at Franklin Templeton Canada.

There is more and more talk of a stagnant environment, he said in an interview.

“And that’s getting more pricey in the stock as we lower valuations.”

Crowther said that bear markets can provide great buying opportunities for those with a long horizon who own stocks in businesses with strong fundamentals and cash flow.

All 11 major sectors in TSX fell, with six sectors down more than 2%.

Healthcare fell 5.1 percent with shares of Aurora Cannabis down 10.7 percent.

Materials fell 4.8 percent amid a drop in metal prices that hampered producers such as Oceangold Corp, which lost 11.6 percent.

The August gold contract was down $43.70 at $1,831.80 an ounce and the July copper contract was down 8.3 cents at $4.21 a pound.

The IT sector fell 3.6 per cent with higher bond yields as investors anticipate significant interest rate increases in the future.

US 10-year Treasuries surged to an 11-year high of 3.373 percent in the late afternoon, while Canadian 10-year government bonds were 3.519 percent. US 2-year bond yields are temporarily inverted with 10-year bond yields, a potential sign of recession.

Lightspeed Commerce Inc.’s stock fell. By 14.4 percent, while Hut 8 Mining Corp fell by 10.5 percent, and Shopify Inc fell by 9.4 percent.

Although crude oil prices were relatively flat on the day, the energy sector lost 3.1 percent with Vermilion Energy Inc down 5.8 percent.

“A strong oil price is not enough to offset the kind of systemic risk aversion sentiment that is happening today,” Crowther said.

The July crude oil contract rose 26 cents to $120.93 per barrel, and the July natural gas contract fell 24.1 cents to $8.61 per million British thermal units.

The Canadian dollar traded at 77.77 US cents against 78.27 US cents on Friday.

Monday also saw cryptocurrencies, which had accelerated during the pandemic when interest rates were low, plummet to what they were in late 2020. Bitcoin lost 12.4 percent to $23,255 from last year’s peak of $68,991.

“Part of the excitement around cryptocurrency and bitcoin is the idea that you have an asset class that will do well in a risk-free environment, and instead we’ve seen the opposite, with a lot of these cryptocurrencies seeing more downside volatility and not protecting value the way it was.” People hope for it.”

The sale prompted cryptocurrency exchange Celsius to halt withdrawals on Sunday evening. Celsius is partly owned by Caisse de depot et placement du Quebec.

The pension fund manager said in an email that the percentage degree has been affected by very challenging markets in recent weeks that have accompanied massive withdrawals of cryptocurrencies.

“Celsius is taking proactive measures to fulfill its obligations to its customers (the Celsius community) and has fulfilled its obligations to its customers thus far. Our team is closely monitoring the situation,” spokeswoman Kate Monfette said.

This report was first published by The Canadian Press on June 13, 2022.

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