March 1st, 2024

TSX, U.S. markets slide Wednesday on tech losses and hawkish Fed remarks

By Rosa Saba, The Canadian Press on January 31, 2024.

The exterior of the TMX is seen in Toronto, Wednesday, Nov. 1, 2023. THE CANADIAN PRESS/Chris Young

TORONTO – Canada’s main stock index fell more than 200 points Wednesday on broad-based weakness, while U.S. markets also fell, led by losses in the tech sector.

Markets were mixed for much of the day, led by weakness in tech, but after the U.S. Federal Reserve’s interest rate decision, they slid for the rest of the afternoon, with the Nasdaq ending the day 2.2 per cent lower and the S&P 500 down 1.6 per cent.

The S&P/TSX composite index was down 205.99 points at 21,021.88.

In New York, the Dow Jones industrial average was down 317.01 points at 38,150.30. The S&P 500 index was down 79.32 points at 4,845.65,while the Nasdaq composite was down 345.88 points at 15,164.01.

The biggest factor driving markets lower Wednesday was weakness among major tech companies after some of the biggest names reported earnings, said Jules Boudreau, senior economist at Mackenzie Investments.

Alphabet shares were down more than seven per cent, while Microsoft lost 2.7 per cent, even though both companies delivered stronger profit and revenue than expected. Meanwhile, Tesla shares fell after a Delaware judge ruled CEO Elon Musk isn’t entitled to his compensation package, while Advanced Micro Devices saw shares slump after its revenue forecasts fell short of estimates.

“In general, I think that’s what’s been driving the weakness,” said Boudreau.

Adding to the weight on equities was the interest rate announcement, said Boudreau.

While the central bank’s rate hold came as no surprise, the statement it offered was more hawkish than expected, he said.

The Fed made clear that it needs more confidence in inflation’s march toward two per cent before it can reduce rates.

“We’re not declaring victory at all,” said chairman Jerome Powell, adding it’s unlikely that the central bank will get enough confidence to cut by March. “It’s probably not the most likely case.”

Investors have been anticipating a start to rate cuts as soon as March, but with the Fed’s remarks Wednesday, a March cut is out of the question, said Boudreau, adding, “it was always a bit early in our view.”

Markets were pricing in strong chances for a cut in March just a month ago, but those bets have been fading throughout January and eased further Wednesday afternoon, according to data from CME Group.

In Canada, a new report showed the economy grew 0.2 per cent in November, while a preliminary estimate suggested real gross domestic product increased by 1.2 per cent on an annualized basis in the fourth quarter.

The report was “unambiguously good news,” said Boudreau, given the recent spate of bad data as Canada’s economy has weakened significantly more under interest rate hikes than the U.S. economy has.

The GDP data doesn’t fully rule out a technical recession, said Boudreau.

However, it complicates the Bank of Canada’s decision-making around rate cuts, he said, especially if the GDP report is followed by data showing jobs growth.

“We still think that April will be a cut, but it adds a little bit of uncertainty.”

The Canadian dollar traded for 74.64 cents US, compared with 74.53 cents US on Tuesday.

The March crude contract was down US$1.97 at US$75.85 per barreland the March natural gas contract was up two cents at US$2.10 per mmBTU.

The April gold contract was up US$16.50 at US$2,067.40 an ounceand the March copper contract was up half a penny at US$3.91 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Jan. 31, 2024.

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

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