North American stock markets declined for a third straight trading session Tuesday, as the fallout from a surprisingly hawkish speech last week by the chair of the U.S. Federal Reserve continued. 

In a high-profile speech in Jackson Hole, Wyo. last Friday, 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.

The tough-sounding rhetoric immediately sent government bond yields soaring and weighed on both fixed-income and equity markets. Wall Street is worried that the Fed could hit the brakes too hard on an already slowing economy and veer it into a recession. Higher interest rates also hurt investment prices, especially for pricier stocks. 

Tuesday's fresh consumer confidence and job openings data from south of the border only served to solidify the sell-off, as the latest U.S. numbers were stronger than forecast and point to buoyant household demand and tight labour market conditions, said Candice Bangsund, vice-president and portfolio manager with Fiera Capital.

“It’s added to calls for another outsized, 75-basis point rate hike at the September Federal Reserve gathering,” Bangsund said. “And so equity market weakness was widespread (today), with both the S&P 500 and the S&P/TSX down over 1 per cent in today’s trading.”

The S&P/TSX composite index was down 323.22 points at 19,512.90.

In New York, the Dow Jones industrial average was down 308.12 points at 31,790.87. The S&P 500 index was down 44.55 points at 3,986.16, while the Nasdaq composite was down 134.53 points at 11,883.14.

The S&P/TSX underperformed the S&P/500 on Tuesday, due to a sharp decline in the index’s heavyweight Canadian energy sector, which fell 3.81 per cent on the day. Energy firms saw their share prices fall with the price of crude, which was significantly lower Tuesday after reports that violent clashes in Baghdad have yet to hit Iraq’s oil production alleviated fears of a major potential supply disruption.

The October crude contract was down US$5.37 to US$91.64 per barrel and the October natural gas contract was down 29 cents at US$9.04 per mmBTU. 

Still, Bangsund said energy fundamentals remain strong.

“Crude prices have managed to hold above the US$90 mark even in the wake of mounting fears about the state of the global economy,” Bangsund said. “Tight supply conditions are countering worries over a global recession and its impacts on energy demand.”

The Canadian dollar depreciated on the back of Tuesday’s steep drop in crude prices, to trade for 76.48 cents US compared with 76.87 cents US on Monday.

The December gold contract was down US$13.40 at US$1,736.30 an ounce. Bangsund said the Federal Reserve’s apparent resolve in pushing interest rates higher has curbed the appeal of the non-interest bearing metal. 

“Recent dollar strength and rising bond yields have dampened the appeal of bullion, which fell to a one-month low this week,” she said.

The December copper contract was down six cents at US$3.55 a pound.

This report by The Canadian Press was first published Aug. 30, 2022.