The S&P 500 ended lower on Monday after President Joe Biden picked Federal Reserve Chair Jerome Powell to lead the central bank for a second term, while Wall Street lenders rallied on the prospect of interest rate hikes in 2022.
The TSX also closed lower, with the tech sector - as it was on Wall Street - particularly weak. The Nasdaq tumbled deep into negative territory after it and the S&P 500 earlier hit record highs, with climbing Treasury yields weighing on Amazon, Alphabet and other major growth stocks.
Bucking losses in other Big Tech stocks, Apple ended at its highest level ever after JPMorgan flagged possible improvements to the supply of the iPhone 13 in coming months.
The Toronto Stock Exchange’s S&P/TSX composite index ended the day down 134.26 points, or 0.6% at 21,420.77.
The technology subindex was the biggest loser, falling 3%, as its biggest component, Shopify Inc lost 5.2%. Shopify is Canada’s most valuable company.
Powell is seen as slightly more hawkish than Governor Lael Brainard, the other top candidate for the job who will be vice chair, said Philip Petursson, chief investment strategist at IG Wealth Management.
“This indicates to the market that you will see a response out of the Fed perhaps quicker than a Brainard Fed,” he said. “That’s what’s impacting technology to the downside... and in Canada, Shopify can move the market.”
But Powell’s nomination was largely welcomed by investors hoping for no big changes in the Fed as it guides the economy through a recovery from the pandemic. The central bank is set to herald a return to pre-pandemic policy by end-2022.
Fed Governor Lael Brainard, who was the other top candidate for the job, will be vice chair, the White House said.
“Markets like predictability. ... While Brainard may have been a fine choice, the markets would not know what to expect from her even though the general consensus was that it meant lower rates for longer,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas.
The S&P 500 banks index rallied 2%, tracking a surge in Treasury yields as investors priced in policy tightening by the first half of 2022. Wells Fargo & Co rose over 3% and was among the strongest major Wall Street banks.
Futures contracts tied to the Fed’s policy rate indicated that money markets are now expecting the U.S. central bank to raise interest rates by 25 basis points by next June versus a previous estimate of July.
“Financials being up today is pretty much an interest rate story, and tech being down is a rates story too,” said Ross Mayfield, investment strategist at Baird.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 8.5 basis points at 0.590%, its highest since early March 2020, following a weak auction of $58 billion in notes, said Lou Brien, an analyst at DRW Trading.
Rising short-term yields suggests that the market is anticipating a more aggressive tapering move by the Fed in 2022, said Ian Lyngen, head of U.S. Rates Strategy at BMO Capital Markets. Powell’s nomination “certainly puts an earlier lift-off on the table,” he said.
The Dow Jones Industrial Average rose 0.05% to end at 35,619.25 points, while the S&P 500 lost 0.32% to 4,682.94.
The Nasdaq Composite dropped 1.26% to 15,854.76.
The S&P 500 value index climbed 0.6%, strongly outperforming the S&P 500 growth index’s 1% dip.
In extended trade, Zoom Video Communications jumped 6% after the video-conferencing company posted quarterly revenue that beat expectations
Investors were awaiting a slew of economic data this week, including IHS business activity readings, personal consumption expenditure, and minutes of the Fed’s latest meeting.
In Monday’s session, Amazon fell 2.8% and Alphabet declined 1.8%, both weighing heavily on the Nasdaq.
The S&P 500 has now gained about 25% in 2021, while the Nasdaq is up 23%.
Declining issues outnumbered advancing ones on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.76-to-1 ratio favored decliners. The S&P 500 posted 52 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 138 new highs and 507 new lows. Volume on U.S. exchanges was 11.6 billion shares, compared with the 11.1 billion average for the full session over the last 20 trading days.
Oil prices gained 0.3% on reports that OPEC+ could adjust plans to raise oil production if large consuming countries release crude from their reserves or if the coronavirus pandemic dampens demand.
Canadian energy company Crescent Point Energy was among the biggest gainers in Toronto, ending the day up 4%.
Pembina Pipeline shares, however, fell 2.7% to C$40.50, after the company said its CEO would step down to pursue other opportunities, and its CFO would take over as interim chief.
Air Canada shares fell 1.4% to C$23.21 after the company agreed to a $4.5 million settlement to resolve a U.S. government investigation into claims thousands of air passenger refunds were delayed.
Read more: Stocks seeing action on Monday - and why
Reuters, Globe staff
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