U.S. and Canadian stocks closed lower on Wednesday as Federal Reserve Chairman Jerome Powell’s congressional testimony reinforced the central bank’s objective to rein in inflation as he hinted at the likelihood of further interest rate hikes.
All three major U.S. stock indexes notched their third straight daily declines, with megacap tech- and tech-related shares weighing most. The Toronto market, meanwhile, saw declines for the interest-rate sensitive real estate sector, as domestic retail sales data supported expectations for further interest rate hikes by the Bank of Canada.
“It seems the market is catching its breath after a huge start to the month,” said Ryan Detrick, chief market strategist at Carson Group in Omaha. “Historically June isn’t a very strong month for stocks, but this year could go down as one of the strongest Junes ever - so a small break in the run stocks have had is perfectly normal.”
In his testimony before the U.S. House Financial Services Committee, Powell reiterated the fact that the central bank remains “strongly committed to bringing inflation back down to our 2% goal,” and said it would be “a pretty good guess” that future rate hikes are in the cards if the economy continues on its current path.
As of Wednesday, financial markets have priced in a 74% likelihood of another 25 basis point interest rate hike at the conclusion of July’s monetary policy meeting, according to CME’s FedWatch tool.
Powell is scheduled to testify before the Senate Banking Committee on Thursday.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 48.19 points, or 0.2%, at 19,705.95, its lowest closing level since June 1.
The real estate sector fell 1.3% to hit a six-month low, while technology was ended 1.3% lower.
Higher interest rates reduce the value to investors of the future cash flows that technology companies are expected to produce.
Canadian retail sales climbed 1.1% in April and will likely post another gain in May, Statistics Canada data showed.
“Any data point similar to today’s retail sales is putting more pressure on the Bank of Canada to move rates higher,” said Angelo Kourkafas, senior investment strategist at Edward Jones.
“Even though investors realize that the bulk of tightening is behind us, it’s still too early to declare victory yet.”
The Bank of Canada agreed that the need for further rate hikes would be determined by fresh economic data after it lifted rates to a 22-year high of 4.75% earlier this month, minutes from the central bank’s policy meeting showed.
Money markets see a 72% chance that the BoC will tighten further at the next policy decision on July 12, up from 64% before the retail sales data.
Energy was a bright spot in Toronto, rising 1.6% as the price of oil settled 1.9% higher at US$72.53 a barrel.
The Dow Jones Industrial Average fell 102.35 points, or 0.3%, to 33,951.52, the S&P 500 lost 23.02 points, or 0.52%, to 4,365.69 and the Nasdaq Composite dropped 165.10 points, or 1.21%, to 13,502.20.
Among the 11 major sectors of the S&P 500, energy stocks led the gainers, rebounding from its biggest daily plunge in over a month. Tech and communication services suffered the largest percentage drops.
Chips weighed heavily on tech shares. The Philadelphia SE Semiconductor index dropped 2.7%, it’s biggest daily decline this month.
Tesla Inc was the biggest drag on the S&P 500 and the Nasdaq, sliding 5.5%. Barclays downgraded its rating on the stock to “equal weight” from “overweight,” saying the electric automaker’s recent rally was too sharp relative to fundamentals.
“A big portion of today’s weakness is because Tesla had one of its worst days in a while,” Detrick added. “It’s a stock that was due for a breather as well.”
“After a record win streak some kind of weakness is perfectly acceptable and normal.”
Package delivery firms FedEx and United Parcel Service Inc dropped 2.5% and 2.1%, respectively, after FedEx posted disappointing quarterly earnings and said waning global demand is pressuring its profit margins.
Crypto firms, including Coinbase, Riot Platforms, Marathon Digital and Bit Digital , gained between 1.8% and 4.2%, as Bitcoin breeched the $30,000 level.
Declining issues outnumbered advancing ones on the NYSE by a 1.04-to-1 ratio; on Nasdaq, a 1.42-to-1 ratio favored decliners. The S&P 500 posted 16 new 52-week highs and no new lows; the Nasdaq Composite recorded 80 new highs and 123 new lows. Volume on U.S. exchanges was 10.62 billion shares, compared with the 11.41 billion average for the full session over the last 20 trading days.
Reuters, Globe staff