North American markets slip again, ending rough month for investors

The Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange and Montreal Exchange will be closed on Monday for Ontario's Family Day holiday. The Bay Street Financial District is shown with the Canadian flag in Toronto on Friday, August 5, 2022. THE CANADIAN PRESS/Nathan Denette. NSD/

North American stock markets edged down Tuesday to close what has been a rough February for investors.

The S&P/TSX composite index closed down 38.94 points at 20,221.19.

In New York, the Dow Jones industrial average was down 232.39 points at 32,656.70. The S&P 500 index was down 12.09 points at 3,970.15, while the Nasdaq composite was down 11.44 points at 11,455.54.

The Canadian dollar also fell, trading for 73.48 cents US compared with 73.68 cents US on Monday.

Markets settled in the red after a day of choppy, up-and-down trading to close out the month of February. While 2022 started out strong, North American equities have been in retreat for the last several weeks, with last week in particular taking investors on a rough ride.

Story continues below advertisement

The month of March, too, appears poised to come in like a lion, with the possibility of more volatility on its way, said Steve Locke with Mackenzie Investments. The optimism early in the year that central banks were poised to signal an end to ongoing interest rate hikes has almost entirely dissipated, he said.

“There’s definitely a lot of volatility that we’ve seen, and it’s come from the resetting of expectations,” Locke said.

“With some of the data that’s come through the end of January, early February being a little stronger than expected, we’re seeing now the market has repriced for at least three more hikes (from the U.S. Federal Reserve) over their next few meetings.”

Investors have been worrying for months about the possibility of recession in the wake of a series of rapid interest rate hikes by central banks last year. But in spite of predictions by economists that an economic downturn is likely this year, reports on everything from the job market to consumer spending to inflation itself have come in firmer than expected over the last few weeks.

All of that hotter-than-expected economic data has been bad news for stock markets, as it signals that central bankers _ in particular, the influential U.S. Federal Reserve _ are not getting control of inflation as quickly as they would like.

It also increases the likelihood of more interest rate hikes, which could in turn tilt the economy into a full-blown recession _ taking a bite out of corporate profits and dragging down the equities market.

Story continues below advertisement

Many now see the Fed hiking its key overnight interest rate up to at least 5.25 per cent, if not higher, and keeping it there through the end of the year.

The Fed’s rate is currently set in a range of 4.5 per cent to 4.75 per cent after starting last year at virtually zero.

In this country on Tuesday, Statistics Canada said real gross domestic product was unchanged in the fourth quarter of 2022 after five consecutive quarters of growth.

The report shows a much grimmer economy than forecasters were expecting as higher interest rates took a more noticeable toll on the economy.

But that data did little to shake investors’ belief that more rate hikes are coming, Locke said. In fact, the heightened expectations for rates have sent yields jumping in the bond market this month.

While last year was one of the worst-ever years for fixed-income investors, Locke said, smart investors should be looking to the bond market now.

“I think there’s opportunity here for a balanced investor to really take a look at the bond market, because it has priced in a lot of the damage already in 2022,” he said. “The bond market is going to offer investors some balance against their equity portfolios, and that’s something that should really be embraced.”

Story continues below advertisement

The April crude contract was up US$1.37 at US$77.05 per barrel and the April natural gas contract was up one-and-a-half cents at US$2.75 per mmBTU.

The April gold contract was up US$11.80 at US$1,836.70 an ounce and the May copper contract was up eight cents at US$4.09 a pound.

Sponsored content