S&P/TSX Composite Loses Nearly 300 Points; energy stocks in red

Canada’s main stock index it lost nearly 300 points on Thursday, with energy and mining stocks bearing the brunt of the hit as investors remain concerned about the possibility of a recession.

The S&P/TSX Composite Index closed down 286.92 points at 18,717.12, just one day after Statistics Canada revealed that Canada’s annual inflation rate in May was 7.7%, the largest monthly increase in the cost of living since January 1983.

The inflation data was the latest in a series of recent signals that have scared investors that rising interest rates could trigger a recession, said Allan Small, principal investment adviser at IA Private Wealth.

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“Obviously there is a risk that the Bank of Canada will continue to raise interest rates and remain aggressive,” Small said.

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“In general, this (increased inflation) increases the possibility of a recession, when it raises interest rates to the point where housing is affected, where growth in general is affected.”

The hardest-hit sector on Thursday was the oil and gas sector, with the S&P/TSX Limited Energy Index shedding 6.9 percent on the day. Some of the stocks in the index, including Baytex Energy Corp., MEG Energy Corp. and Crescent Point Energy Corp., lost more than 10 percent.

While Canadian oil and gas stocks have performed exceptionally well through much of 2022 due to the Russian invasion of Ukraine and the resulting disruption to global energy supplies, Small said some investors are beginning to worry that a widespread recession , if it happens, it will take a bite out of the growing demand.

“When you have a recession or recession fear, that basically slows everything down. So the demand side of the equation starts to go down,” he said. “You don’t have as much imbalance, you are more balanced, if people are not going to travel as much and are not going to move as much.”

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The Limited Materials Index, which includes some of Canada’s largest mining companies, also lost ground, falling 5.0 percent on Thursday.

South of the border, however, markets posted gains. In New York, the Dow Jones Industrial Average rose 194.23 points to 30,677.36. The S&P 500 Index rose 35.84 points to 3,795.73, while the Nasdaq Composite rose 179.11 points to 11,232.19.

Small said the difference between Canada and the US is likely due to US Federal Reserve Chairman Jerome Powell’s testimony before Congress this week. While Powell reaffirmed the Fed’s “unconditional” commitment to fighting inflation, he also indicated that the central bank’s previously announced rate hikes may be starting to have an impact on the US.

“They (the US Federal Reserve) hinted that things are starting to slow down, that they are starting to see a decline in demand across sectors,” Small said. “I think the US is further along in this cycle of trying to slow the economy, and that’s why their markets are already going up while ours are still going down.”

Small said it’s unfortunate that no major economic data releases or earnings from the company are expected in the coming weeks, because right now markets are trading on “fear” of a recession and not hard, up-to-date information.


Click to play video: 'Economics professor talks about inflation figures'







Economics professor talks about inflation figures


Economics professor talks about inflation figures

He said it is possible that the next set of readings, when they are released, could indicate that inflation in the US has already peaked, with Canada lagging behind shortly after. That would be good news for the markets, Small said.

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“There’s kind of a lull (in the data) right now, and that’s unfortunate in my opinion,” Small said. “Because if I’m right and inflation has peaked, then I think we could see a positive market in the second half of this year.”

The Canadian dollar traded at 77.03 US cents compared to 77.27 US cents on Wednesday.

The August crude contract was down $1.92 at $104.27 a barrel and the August natural gas contract was down 59 cents at $6.28 per mmBTU.

The August gold contract fell US$8.60 to US$1,829.80 an ounce and the July copper contract fell 21 cents to US$3.74 a pound.

© 2022 The Canadian Press

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