TSX in correction, S&P 500 enters bear market as selloff deepens
The TSX composite sold off by 2.63 per cent on Monday to close at 19,742.56 points, bringing the Canadian index into correction territory -- meaning it’s down 10 per cent from its all-time high earlier this year.
All 11 subgroups closed lower, led by healthcare, materials and technology in percentage terms.
The biggest drag on the index was former tech darling Shopify Inc., which closed 9.37 per cent lower on Monday. Canadian Natural Resources Ltd., Enbridge Inc. and Brookfield Asset Management Inc. were also big laggards.
The selling was also intense in New York, with Wall Street’s three key indices – the Dow Jones Industrial Average, S&P 500 and the Nasdaq – all posting steep declines. The S&P 500 closed 3.88 per cent lower to enter a bear market. The U.S. index is down 22 per cent from its recent record high.
The Dow ended the trading session 2.79 per cent lower while the Nasdaq slid by 4.68 per cent.
Weighing on investor sentiment is the fear of a possible 75 basis point hike that could come from the U.S. Federal Reserve this Wednesday after the latest inflation data came in hotter than expected last week.
“While the Nasdaq has been in a correction mode since October, the overall bear market has only recently been confirmed and has miles to go,” Ross Healy, chairman of Strategic Analysis Corporation and a portfolio manager at MacNicol & Associates Asset Management, said in a broadcast interview.
Healy, who has been an investor for 57 years, noted that a bear market isn’t just about stocks falling, it’s also a time for a re-valuation of stock values. He said he thinks the current downturn in equities could lead to good buying opportunities.
“I have never experienced a market low where those stock values not only fell to their fair market value, but also traded at a nice discount to them,” he said.
Cryptocurrencies were also under pressure, with Bitcoin hitting 18-month low to trade below US$24,000. The crypto sector at large slid following the decision from major crypto lender Celsius to halt withdrawals due to “extreme market conditions”.
“The idea that we have not hit peak inflation is fuelling the concern that the U.S. Fed will have to tighten more than it initially hoped,” Karl Schamotta, chief market strategist at Corpay, said in an interview.
Consumer sentiment is a key data point he is keeping an eye on as a leading indicator of where the market is headed next.
“We’re seeing an almost unprecedented tightening in conditions globally. You have high food and commodity prices, you have a high U.S. dollar, you have rising interest rates all at the same time,” Schamotta said.
Annual inflation in Canada rose to 6.8 per cent in the month of April to reach a three decade high. South of the border, the latest consumer price index came in at 8.6 per cent for May year-over-year.
The July contract for U.S. benchmark oil WTI erased its losses from earlier trading session on Monday to close slightly higher at US$120.93 per barrel.
“What we’re looking at here is all the ingredients needed for a major crunch in consumer consumption that is going to put pressure on revenues through the corporate sector, really around the world, but I would say in particularly here in Canada,” he noted.
“People are going to get hurt in this downturn.”