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North American stock markets fall amid possible signal of rising U.S. interest rates

·4 min read

TORONTO — Blockbuster corporate earnings and economic data couldn't prevent global stock markets from tumbling to end the trading week on renewed COVID-19 concerns and a possible signal that U.S. interest rates could be rising sooner than expected.

The S&P/TSX composite index closed down 147.59 points to 19,108.33. That's slightly higher on the week.

In New York, the Dow Jones industrial average was down 185.51 points at 33,874.85. The S&P 500 index lost 30.30 points at 4,181.17, while the Nasdaq composite was down 119.87 points at 13,962.68 to end its sixth-straight monthly gain.

Nearly 90 per cent of the more than half of U.S. companies reporting first-quarter results so far have beat expectations, the highest level in years.

And GDP numbers in the U.S. and Canada have been stellar, with Canada reporting Friday that the economy grew at an annual rate of 6.5 per cent through the first quarter.

"So a lot of positive things that the markets have digested, but on the flipside, there's a couple of sound bites that came out in early afternoon that were more negative and that led to the acceleration of the losses," said Macan Nia, senior investment strategist at Manulife Investment Management.

Dallas Federal Reserve president Robert Kaplan, a non-voting member of the Fed, floated the idea Friday that the central bank may have to raise interest rates at the end of 2022 and may have to taper some bond-buying.

That's a different view from the Fed, which has consistently suggested continuing stimulus through 2023.

"What was once a very consistent message from all the members … there seems to be some differences in opinions that are coming out," Nia said in an interview.

While supportive of the bank's stated approach, chairman Jerome Powell this week brought up "frothiness in certain areas of the market" as Kaplan did Friday about U.S. housing.

Differing views coming out of the central bank could foreshadow that normalization of policy could come sooner than expected, said Nia.

The central bank's view that inflation isn't a big worry has also come under scrutiny. The Fed has described inflation as "transitory," but the top concern voiced by corporate executives this quarter has been rising input costs and inflation.

While the Bank of Canada has said it would begin to taper monetary stimulus, Nia said the Fed is in an awkward position because confirming similar moves now could prompt a disorderly selloff of bond and equity markets.

"So maybe Kaplan coming out, maybe some of these different views coming out, is just planting the seed in the market that rates are going to continue to rise and make the process more orderly," he said.

Nia said markets are going to be pay much closer attention now to "Fedspeak" for signs of disagreement in messaging.

In addition to the Fed, investors are a bit rattled by growing COVID infections in India and Brazil along with a U.K. study that said one dose of the Pfizer-BioNTech vaccine may leave recipients vulnerable to coronavirus variants.

"That spooked markets a little bit as well and put a damper on the mood today."

Friday was a risk-off day with all 11 major sectors on the TSX losing ground, led by technology, materials and energy.

Shopify Inc. decreased 4.2 per cent to push the sector down 1.8 per cent.

Materials dropped 1.4 per cent on lower metal prices with Eldorado Gold off 8.2 per cent and First Quantum Minerals Ltd. down 3.9 per cent.

The June gold contract was down 60 cents US at US$1,767.70 an ounce and the July copper contract was down 1.85 cents at nearly US$4.47 a pound.

Growing concerns about spreading virus cases in India and Brazil pushed crude oil prices lower on worries about reduced demand.

The June crude contract was down US$1.43 at US$63.58 per barrel and the June natural gas contract was up two cents at US$2.93 per mmBTU.

Shares of MEG Energy Corp. decreased four per cent while Whitecap Resources Inc. lost 2.5 per cent. Imperial Oil had a good day, gaining 4.8 per cent, after raising its dividend.

The Canadian dollar traded for 81.40 cents US compared with 81.35 cents US on Thursday.

Markets ended what was a solid month of April with the TSX up 2.2 per cent and 9.6 per cent higher so far in 2021.

"It's been so far a very good year and markets don't go up in a straight line," said Nia.

"We have these ebbs and flows and this is an example of two steps forward we've had and then we're going to be taking today one step back."

This report by The Canadian Press was first published April 30, 2021.

Companies in this story: (TSX:ELD, TSX:TM, TSX:SHOP, TSX:MEG, TSX:WCP, TSX:IMO, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press