North American stock markets reacted sharply lower on Friday following the announcement by the US Federal Reserve that plans further interest rate hikes to curb inflation.
The Canadian S&P/TSX Composite Index lost 299.05 points to 19,873.29.
In New York, the Dow Jones fell 1008.38 points to 32,283.40. The S&P 500 fell 141.46 points to 4057.66, while the Nasdaq compound slipped 497.56 points to 12,141.71.
Financial markets waited all week for Fed Chairman Jerome Powell’s speech at the annual Central Bankers’ Convention in Jackson Hole, Wyoming.
Investors were hoping to hear Mr. Powell give a sign that interest rates were going to slow their upward trend, but that’s not what they heard at all.
Jerome Powell’s speech became much harsher as he clearly announced the Fed’s intention to put an end to inflation by continuing to hike interest rates for quite some time to come.
“He has been more explicit than ever before in clearly stating that interest rates will continue to remain high for a longer period in order to fight inflation,” commented the vice-president of AGF InvestmentsMike Archibald.
“It has put pressure on various branches of the capital markets and certainly on equities today,” he added.
Among the sectors hardest hit by the market plunge are technologies, which are more sensitive to interest rate fluctuations. The S&P/TSX technology index lost 4.39% while the health care index — which includes cannabis — fell 5.05% as markets closed.
All sectors of the TSX ended in the red on Friday. In the United States, all but six companies in the benchmark S&P 500 index ended in negative territory.
In his speech, Jerome Powell admitted that the Fed’s strategy would hurt American homes and businesses, but he argued that there would be even more damage if inflation were allowed to run wild.
“There is clearly no easy way out of this situation,” concedes Mike Archibald, recalling that the severe policies of central banks have never been favorable to the equity market.
“I believe we are going through a period of volatility with the tightening of interest rates,” added the analyst.
The Canadian dollar was trading at 76.99 cents US compared to 77.30 cents US on Thursday.
October crude oil contracts ended the day up 54 cents US at US$93.06 a barrel. For the same period, natural gas lost 7.5 US cents to US$9.27 per million BTU.
The value of gold for December contracts fell US$21.60 to US$1749.80 an ounce while copper fell less than five cents to US$3.70 a pound.