TSX hits 13-month low as rate outlook clips market valuations

By Fergal Smith

TORONTO (Reuters) - Canada's main stock index fell on Tuesday to its lowest level in more than one year, including a sharp decline for Bombardier Inc , as the prospect of aggressive interest rate hikes weighed on company valuations and the economic outlook.

The Toronto Stock Exchange's S&P/TSX composite index ended down 194.05 points, or 0.98%, at 19,548.51. That was its lowest closing level since May 2021 and its fifth straight day of declines.

"This is a residual effect of the volatility that we've seen in the United States with expectations that the Federal Reserve might come out more hawkish tomorrow than what was expected," said Philip Petursson, chief investment strategist at IG Wealth Management.

The S&P 500 also ended lower as the index was unable to bounce from a sharp sell-off in the prior session with a key policy statement from the Federal Reserve on deck on Wednesday that will reveal how aggressive the central bank's policy path will be.

Investors have bet in recent days on more aggressive tightening from the Fed and the Bank of Canada.

"That all weighs on a number of things," Petursson said. "It weighs on the valuation (of stocks) in the markets; it weighs on the economic outlook of the respective economies in Canada and the United States. And then that just weighs heavily on investor sentiment."

The energy sector lost nearly 2% as oil prices fell. U.S. crude oil futures settled 1.7% lower at $118.93 a barrel.

The utilities sector was down 2.3% and technology ended 1.2% lower.

Shares of Bombardier plunged 18.2% as workers on a key business jet program walked off the job for a day.

On the economic front, Canadian factory sales rose 1.7% in April from the prior month.

(Reporting by Fergal Smith; Additional reporting by Amal S in Bengaluru; Editing by Sandra Maler)