TSX today: Canadian banks fall after JPMorgan warning
Canada’s benchmark stock index fell by triple digits Thursday as investors grew increasingly concerned about a looming recession and reacted to negative earnings news from two big American financial services companies.
The S&P/TSX Composite Index closed 286.13 points lower, or 1.54 per cent, to 18,329.06.
Markets in New York were mixed, but all three major indices ultimately closed off their intraday lows. The S&P 500 ended 0.30 per cent lower, the Dow lost 0.46 per cent and the Nasdaq narrowly ended in positive territory with a 0.03 per cent gain.
Wall Street bank earnings started to roll in on Thursday and gave a glimpse into their view of the prospects of the U.S. economy.
JPMorgan Chase & Co. suspended share buybacks and earnings fell short of second-quarter estimates. Chief Executive Officer Jamie Dimon said the bank needed to increase its capital buffer to prepare for a range of possible economic scenarios.
That warning rattled Canadian bank stocks. The TSX financials subsector was the biggest drag on the index Thursday.
“What we want to see, in this earnings season, is to what extent any kind of economic slowdown is showing up in the actual earnings. And to what extent, from the U.S. perspective, of course, the strength of the dollar is impacting earnings,” said Diana Avigdor, portfolio manager and head of trading at Barometer Capital Management, in an interview Thursday.
“We're going to have to see what the rate hike is going to do to loan demand, mortgage demand, housing and that sort of thing, in order to fully assess. However, Canadian banks have been known to be pretty stable as dividend payers and markets are now looking, or investors are now looking, for more of a safety trade.”
Fighting the broader market direction on Thursday were cannabis stocks. Tilray Brands Inc., Aurora Cannabis Inc. and Canopy Growth Corp. were among the best-performing companies on the TSX.
Pot stocks got a boost after U.S. senate democrats planned to introduce a bill to a bill to federally decriminalize marijuana, although the legislation faces a challenging road to approval through a split chamber.
Organigram Holdings Inc. reported its third-quarter gross revenue surged 90 per cent in its latest quarter compared with a year ago, though it still posted a $2.8-million loss. The company said new products and improved sales momentum helped boost its top line. Shares closed a cent higher on Thursday at $1.39.
Benchmark WTI crude sank US$0.52 to settle at US$95.78 per barrel. Earlier in the trading day, oil slumped to US$91.86 a barrel, the lowest level since Russia’s invasion of Ukraine.
Eric Theoret, global macro strategist at Manulife Investment Management, said lower crude oil prices are an important component to the Bank of Canada’s path in lowering inflation.
“Central banks have tightened, growth is expected to slow and commodities are adjusting, so I think this is all part of the process that central banks are trying to achieve in terms of getting inflation down and a key component of that is the price of energy,” Theoret said in an interview on Thursday.
“Weakness in crude is actually desired by central banks at this point, given how important it has been to this latest uptick in inflation that we’ve been seeing in the headline figures.”
Theoret added that as the central bank starts to get inflation under control, both the materials and energy sectors will start to weaken.
“Canada is starting to suffer and you really need only look at the currency to see, you know, that weakness really materialize,” he said.
The Canadian dollar ended lower at 76.30 cents U.S. Thursday.