BNN Bloomberg's closing bell update: September 1, 2022
Canada’s main stock index declined for a fourth straight trading session Wednesday to end the month of August with investor sentiment squarely in the risk-off camp.
The S&P/TSX composite index closed down 182.09 points at 19,330.81.
In New York, stock markets also fell for the fourth day in a row. The Dow Jones industrial average closed down 280.44 points at 31,510.43. The S&P 500 index was down 31.16 points at 3,955.00, while the Nasdaq composite closed down 66.94 points at 11,816.20.
“It’s really been an ugly end to the month here, giving back all of those gains that we had a few weeks ago,” said Greg Taylor, chief investment officer with Purpose Investments.
“I thought there’d be a little bit more of a bounce into month-end. There usually is, and we haven’t really got there.”
Global equities markets have been slumping since last Friday, when a hawkish speech by Fed chair Jerome Powell made it clear that interest rates will need to continue to rise and will stay high for longer than many investors had hoped. Powell also warned that efforts to curb widespread inflation will result in some degree of economic pain for consumers and businesses.
Powell’s message came as a harsh reality check to investors who were hoping that the U.S. central bank might begin reversing its course of interest rate hikes as early as next year. It also hurt markets, as higher interest rates are bad for investment prices, especially riskier stocks.
In Canada, where the market has already priced in a likely 75-basis point interest rate increase by the Bank of Canada next week, investors have also been dealing with what Taylor called “a perfect storm of bad news.”
First, there were the worse-than-expected third-quarter earnings from some of the major Canadian banks last week, which weighed on the TSX's heavyweight financials sector.
Now this week, the price of crude oil is slumping on fears of economic slowdown in China as well as reports that violent clashes in Baghdad have yet to hit Iraq’s oil production alleviating fears of a major potential supply disruption.
That has led to some significant share price losses for Canadian energy producers. The S&P/TSX capped energy index has declined by more than four per cent since Monday.
"When you get the banks down and energy’s down, it’s pretty much impossible for the TSX to outperform," Taylor said.
The October crude contract was down US$2.09 at US$89.55 per barrel and the October natural gas contract was up eight-and-a-half cents at US$9.13 per mmBTU.
The December gold contract was down US$10.10 at US$1,726.20 an ounce and the December copper contract was down three cents at US$3.52 a pound.
The Canadian dollar traded for 76.27 cents US compared with 76.48 cents US on Tuesday.
One caveat to the rash of negative markets news this week is that it's all happening on fairly light trading volumes, Taylor said.
"August is typically the quietest part of the year. There’s not a lot of volume, a lot of people are on vacation still," he said.
However, this week's market declines are spurring concern about what the autumn months may bring. Taylor said there are already worries that companies may start issuing fourth-quarter earnings warnings in the coming weeks, which would be interpreted as a sign that interest rate hikes are starting to take a toll on corporate profits and the overall economy.
"September and October are usually some of the more volatile months of the calendar, so that’s got people a little more concerned heading into this year — with the bad tone we've got already.”