The S&P/TSX composite index slid slightly Wednesday, but not as much as U.S. stocks which were deflated by a worse-than-expected inflation report from south of the border.
Canada's main stock index closed down 52.81 points at 19,837.25, after gains from a brief morning rally were reversed by an afternoon sell-off.
In New York, markets fell further, with the Dow Jones industrial average down 326.63 points at 31,834.11 at end of day. The S&P 500 index was down 65.87 points at 3,935.18, while the Nasdaq composite was down 373.43 points at 11,364.24.
The slump in both countries was a reaction to Wednesday's report from the U.S. Department of Labour that showed inflation in that country was 8.3 per cent in April — down slightly from 8.5 per cent in March, but still higher than what many economists had expected.
Greg Taylor, chief investment officer with Purpose Investments, said investors had been hoping the latest inflation figures would come in less hot and help to trigger a rebalancing in the market, which has been favouring high-yield, safer bonds over stocks.
Without some indication that inflation has peaked and begun to decline, the U.S. Federal Reserve and other central banks are likely to continue to raise interest rates — perhaps sharply — in coming months, Taylor said. And that's hurting high-growth stocks, such as technology companies, who benefited from low interest rates during the pandemic.
"That inflation number that came out this morning really shows that inflation isn’t going away anytime soon," he said. "It's been a frustrating day . . . and it's caused some pretty aggressive selling again in some of these tech stocks, which really has been a pain point for the markets."
The S&P/TSX capped information technology index was down 1.57 per cent Wednesday, while the S&P/TSX capped consumer discretionary index was down 2.48 per cent.
Energy stocks, however, got a boost, with the S&P/TSX energy index up 1.53 per cent as the June crude contract was up US$5.95 at US$105.71 per barrel after dipping earlier in the week.
Taylor said the jump in the price of oil followed a new report from the U.S. Energy Information Administration, which showed U.S. crude oil inventories are about 13 per cent below the 5-year average for this time of year.
“This is a bit of a concern, because this is the time of year we should be building inventories heading into driving season," Taylor said. "It just goes to show that there really isn’t a quick fix to the supply shortages in the energy sector."
The TSX's relatively large exposure to the oil and gas sector is a major reason why Canada's main stock index didn't fall as much as its U.S. counterparts, which have more exposure to the high-tech sector, Taylor added.
"The energy sector is the one shining light for Canada, and the reason Canadian investors are probably feeling a whole lot better than American investors," he said.
Still, markets as a whole are watching and waiting for any kind of a sign that can reverse the current seller's market situation.
“I think everyone’s waiting to see if we can get some kind of bounce," Taylor said. "I think markets are looking really technically oversold — they’ve been down for five weeks in a row now — and we’re trying to see if there’s any relief coming.”
The Canadian dollar traded for 77.10 cents US compared with 76.85 cents US on Tuesday.
The June natural gas contract was up 26 cents at US$7.64 per mmBTU.The June gold contract was up US$12.70 at US$1,853.70 an ounce and the July copper contract was up five cents at US$4.21 a pound.
This report by The Canadian Press was first published May 11, 2022.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)
Amanda Stephenson, The Canadian Press