North American stock markets fell for a third consecutive trading session on Tuesday as the fallout from a surprisingly hawkish speech last week by the chairman of the US Federal Reserve continued.
In a high-profile speech in Jackson Hole, Wyo, last Friday, Fed Chairman Jerome Powell made it clear that interest rates will have to keep rising and stay high for longer than many investors had hoped. Powell also warned that efforts to rein in widespread inflation will cause some degree of economic pain for consumers and businesses.
The harsh rhetoric immediately sent government bond yields soaring and weighed on fixed income and equity markets. Wall Street fears that the Fed is putting the brakes on an already slowing economy too hard and pushing it into a recession. Rising interest rates also hurt investment prices, especially for more expensive stocks.
Tuesday’s new consumer confidence and data on job openings south of the border only bolstered the selloff as the latest U.S. numbers were stronger than expected and point to sustained household demand and conditions. tight labor market conditions, said Candice Bangsund, Vice President. and portfolio manager at Fiera Capital.
“This adds to calls for another outsized 75 basis point rate hike at the September Federal Reserve rally,” Bangsund said. “And so stock market weakness was widespread (today), with the S&P 500 and S&P/TSX down more than 1% in today’s trading.”
The S&P/TSX Composite Index lost 323.22 points to 19,512.90.
In New York, the Dow Jones Industrial Average was down 308.12 points at 31,790.87. The S&P 500 index fell 44.55 points to 3,986.16, while the Nasdaq composite fell 134.53 points to 11,883.14.
The S&P/TSX underperformed the S&P/500 on Tuesday, due to a sharp decline in the index’s heavyweight Canadian energy sector, which fell 3.81% on the day. Energy companies saw their stock prices fall along with the price of crude, which was significantly lower on Tuesday after reports that violent clashes in Baghdad have yet to hit Iraqi oil production eased fears of a potential major disruption in supply.
The October crude contract was down US$5.37 at US$91.64 per barrel and the October natural gas contract was down 29 cents at US$9.04 per mmBTU.
Still, Bangsund said energy fundamentals remain strong.
“Crude prices have managed to hold above the US$90 mark even in the wake of growing fears over the state of the global economy,” Bangsund said. “Tight supply conditions counteract concerns about a global recession and its impacts on energy demand.”
The Canadian dollar depreciated following the sharp drop in crude prices on Tuesday, to trade at 76.48 cents US from 76.87 cents US on Monday.
The December gold contract was down US$13.40 at US$1,736.30 an ounce. Bangsund said the Federal Reserve’s apparent determination to push interest rates higher has dampened the appeal of the non-interest-bearing metal.
“Recent dollar strength and rising bond yields have dampened the appeal of bullion, which fell to a one-month low this week,” she said.
The December copper contract was down six cents at US$3.55 a pound.
This report from The Canadian Press was first published on August 30, 2022.