A wave of red swept through North American equity markets on Wednesday, on the heels of stronger-than-expected inflation data in Canada and the impact of cost pressures on major retailers in the United States.
The Toronto Stock Exchange’s S&P/TSX Composite Index tumbled 389.63 points, or 1.9%, to close at 20,101.38 points.
Major US markets fared even worse. According to Michael Currie, vice president and investment advisor at TD Wealth Management, they had their worst day since 2020.
In New York, the Dow Jones Industrial Average fell 1164.52 points to 31,490.07 points. The broader S&P 500 index plunged 165.17 points to 3,923.68 points, while the Nasdaq Composite Index tumbled 566.37 points, or 4.7%, to 11,418.15 points.
Currie said very few stocks advanced during the session in either country, and divestments were particularly prevalent.
The Toronto market was hit by very poor annual inflation data, which in April hit a new three-decade high of 6.8%, compared to 6.7% in March.
In the United States, markets reacted to comments made by Federal Reserve Chairman Jerome Powell on Tuesday, in which he said the central bank would take a hard line on raising rates to fight inflation.
“I know the recession is on everyone’s mind, but right now it all seems to be about inflation,” Currie said in an interview.
Markets had rebounded in Tuesday’s session.
In the past, when the markets were doing well, investors had the reflex to buy after a drop to take advantage of bargains.
“Now we have seen the exact opposite for the past six months […] People use any sale day as an opportunity to sell,” he noted.
While Tuesday’s gains were supported by strong U.S. retail sales, Target’s weak quarterly results, which came a day after disappointing results for Walmart, caused some panic. Shares of Target fell 25% while those of Walmart fell 7%, after losing 11% on Tuesday, posting their biggest drop in nearly 35 years.
Large retailers pointed to higher fuel, transportation and employee salary costs, all of which are hurting margins. The weakness trickled down to share prices of other U.S. retailers, including Amazon, Best Buy, Kohl’s and Dollar General.
“The feeling is that if Walmart and Target can’t fix this, the other players don’t have a chance,” Currie explained.
The exception was Winners’ parent, TJX Companies, which saw its stock rise 7.1% after posting better-than-expected results.
Ten of the eleven sectors on the Toronto floor retreated, in particular health care and consumer discretionary, which lost 4.4% and 4.1% respectively. The consumer staples group fell 3.8%.
The energy, financials, industrials, information technology and materials sectors lost between 1.6% and 2.5%.
On the New York Commodities Exchange, crude oil prices fell US$2.59 to US$107.04 a barrel, and natural gas rose US6.4 cents to US$8.37 million BTUs.
Gold fell US$3.00 to US$1,815.90 an ounce and copper fell US$6.1 cents to US$4.18 a pound.
In the foreign exchange market, the Canadian dollar traded at an average rate of 77.88 cents US, down from 77.92 cents US the previous day.