Stock and financial markets ended the week down sharply on Friday, as investors grew increasingly concerned about a deterioration in global economic conditions.
Posted at 6:14 p.m.
In Canada, the main index of the Toronto Stock Exchange suffered its largest daily decline in more than three months and the Canadian dollar accentuated its descent below 74 US cents.
These two indicators were mainly shaken by a relapse in oil prices and by concerns that a sharp slowdown in the global economy would have a negative impact on commodity markets.
The S&P/TSX index ended down 521 points, or 2.8%, at 18,480 points, its lowest closing level in more than two months.
It was a fourth consecutive session down, bringing the decline to 4.7% in one week, and 16% from the record closing level reached last March.
Awareness
“It is the realization among stock market investors that we are witnessing a general slowdown in the global economy. It’s already making its way into lower commodity prices,” Philip Petursson, chief investment strategist at IG Wealth Management, told financial news agency Reuters.
On Friday on the Toronto Stock Exchange, the energy sector index fell 7.8%, while the materials sector index, which includes mining metals and fertilizer minerals, fell 4.5%. %.
Together, these two sectors represent almost 30% of the weighting of the S&P/TSX market index.
Meanwhile, Canadian economic data released Friday showed retail sales fell 2.5% in July.
This is more than expected by economists, but also an indicator that interest rate hikes by the Bank of Canada are rapidly slowing consumer spending.
“Controlling inflation will remain costly (for the economy and financial markets), but the price of doing otherwise will only increase over time,” said Royce Mendes, Managing Director and Head of Macroeconomic Strategy at Mouvement Desjardins, in a note on the economic situation obtained by The Press.
“For central banks, getting the job done as soon as possible may well lead to a mild recession in the short term, but will also avoid a major contraction in the longer term. »
Economic concerns
The main indexes of the American stock market also closed down sharply on Friday, but not as much as the flagship index of the Canadian stock market.
In New York, the Dow Jones index fell 486 points, or 1.6%, to 29,590 points, its lowest closing level since the end of 2020.
Meanwhile, the broader S&P 500 index fell 64 points, or 1.7%, to 3,693, and the NASDAQ market index fell 198 points, or 1.8%, to 10,867 points.
Market analysts say investors are concerned that measures taken by major central banks to contain inflation, particularly sharp increases in interest rates, could tip the world’s major economies into recession.
“The stock market continues to be plagued by the same concerns that have caused it problems over the past few weeks; sharply rising interest rates heighten fears that these monetary policies of the world’s major central banks will lead to a hard landing for the economy, and therefore a considerable reduction in the outlook for future corporate earnings on the stock market,” Martin said. Roberge, senior North American markets analyst at Canaccord Genuity in Montreal, in a note to client-investors obtained by The Press.
At this rate, the S&P 500 index of the American stock market and the MSCI index of global equities are now down more than 20% since the start of the year.
For its part, the S&P/TSX Canadian stock market index is doing a little better so far, posting a drop of about 13% since the start of the year.
What prospects for the future?
“Unfortunately for investors, there is little visibility as to when interest rates will stop rising, where they will peak and how they will affect corporate earnings,” Martin Roberge said in his note to investors. .
“And to make the situation even more difficult, these uncertainties come as the US stock market’s S&P 500 index is still trading above the historical averages of its main value multiples. »
