TORONTO — Falling energy prices and renewed fears around the rate hike path ahead helped push Canada’s main stock index down almost 1.2% Monday, while U.S. markets fell further.
Markets on both sides of the border were under pressure as data out of the U.S., including on service sector activity that came in higher than expected, indicated continued economic strength.
“The narrative of, ‘Good economic news is bad news for stocks’ is in full display,” said Angelo Kourkafas, investment strategist at Edward Jones.
Data out of the Institute for Supply Management on the service sector showed surprise growth for November, adding to picture of a still hot economy created by Friday’s job numbers out of the U.S., he said.
“Resilient activity means that there’s going to be more of an inflationary impulse in the services sector, and really feeding into the narrative of higher interest rates for longer.”
He said that the latest data hasn’t pushed up expectations of how high rates will go but more on the duration, creating more of a risk-off sentiment as Treasury yields also rose on the data.
The S&P/TSX composite index closed down 243.40 points at 20,242.26.
In New York, the Dow Jones industrial average was down 482.78 points at 33,947.10. The S&P 500 index was down 72.86 points at 3,998.84, while the Nasdaq composite was down 221.56 points at 11,239.94.
Canada’s main index saw pressure both on the growth-oriented information technology side from the U.S. data, as well as on energy and metal stocks as commodities fell.
The Canadian dollar traded for 73.90 cents US compared with 74.25 cents US on Friday.
Central Banks in Canada and the U.S. are both poised to announce their latest rate decision, with the Bank of Canada on Dec. 7 and the U.S. Federal Reserve on Dec. 14.
Kourkafas said that there has been a pretty meaningful rally since the mid-October lows even though the investment backdrop is no less complicated, so some pullback is not surprising. He said, however, that the worst-case outcomes are narrowing as there is some indication of progress on inflation but that there’s still a ways to go.
“It’s not going to be an overnight process. It’s going to be gradual one and investors need some patience.”
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