Canada’s main stock index lost more than one per cent on Wednesday in a broad-based slump and U.S. markets also fell, as stocks took a dramatic turn in the later half of the afternoon.
The sudden weakness didn’t seem to be sparked by a particular news event, said Kevin Burkett, portfolio manager at Victoria-based Burkett Asset Management.
But after an “incredible run” for markets over the past couple of months as rate expectations shifted, investors are likely taking a cautious step back, he said.
“There’s a lot of nervousness around the rally of the last 30 days.”
The S&P/TSX composite index closed down 238.82 points at 20,600.81.
In New York, the Dow Jones industrial average was down 475.92 points at 37,082.00. The S&P 500 index was down 70.02 points at 4,698.35, while the Nasdaq composite was down 225.28 points at 14,777.94.
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Markets closed out their seventh straight winning week on Friday.
The U.S. Federal Reserve has continued to maintain a cautious front, Burkett said, even as markets are calling for more cuts than the central bank has said it expects to take.
“Monetary policymakers don’t want to show their hand because that diminishes the impact of the decisions they make at their meetings,” he said.
Last week, the Fed announced it would hold its benchmark rate steady in the last policy announcement of 2023. The central bank also signalled it expects to make three cuts of a quarter-point in 2024.
The Bank of Canada also recently held its key rate steady. In the summary of its deliberations released Wednesday, central bank officials agreed the odds of another hike have decreased with recent data pointing in the right direction.
The question in the U.S. and Canada heading into 2024 isn’t really whether central banks will raise rates again, said Burkett.
“The question is, how quickly will they start cuts? And how deeply will they cut from here?” he said.
New data in the U.S. showed consumer confidence improved in December, by more than economists expected. Sales of previously occupied homes in November also beat expectations.
Wednesday also saw some disappointing earnings reports from U.S. companies including FedEx.
The Canadian dollar traded for 75.01 cents US compared with 74.94 cents US on Tuesday.
The February crude oil contract was up 28 cents at US$74.22 per barrel and the January natural gas contract was down five cents at US$2.45 per mmBTU.
The February gold contract was down US$4.40 at US$2,047.70 an ounce and the March copper contract was up a penny at US$3.91 a pound.
— With files from The Associated Press