S&P/TSX composite down almost one per cent; U.S. markets mixed over bank failures

Worries about the financial system after two recent bank failures saw bank stocks pull U.S. markets mostly down Monday, while Canadian markets fell on weakness in energy and financials.

The financial sector took a dive Monday as the closures of Silicon Valley Bank and Signature Bank prompted fears about the overall financial system, dragging both Canadian and U.S. markets, said Allan Small, senior investment adviser at iA Private Wealth.

The S&P/TSX composite index was down 186.02 points at 19,588.90.

Gains in tech helped U.S. markets gain back their morning losses as the day progressed, though a selloff in the last hour brought the Nasdaq’s gains lower while the other main indexes posted small losses.

In New York, the Dow Jones industrial average was down 90.50 points at 31,819.14. The S&P 500 index was down 5.83 points at 3,855.76, and the Nasdaq composite was up 49.96 points at 11,188.84.

Tech shares were buoyed by optimism that the Federal Reserve will be less aggressive in its tightening for fear of worsening the financial sector, either by pausing rate hikes at next week’s interest rate meeting or by announcing fewer hikes than previously anticipated, said Small.

“A lot of people believe the Fed can’t raise interest rates a whole lot more,” he said.

Markets had been largely pricing in a raise of a quarter of a percentage point for the next meeting plus further hikes ahead, Small said.

But on Monday, Goldman Sachs forecast a pause in rate hikes due to the two bank collapses.

For the tech sector, which has been particularly sensitive to interest rate increases, this would be welcome news, and on Monday the Nasdaq outpaced other indexes.

However, Small thinks that a quarter-point hike is still the most likely scenario — though U.S. inflation data and retail sales being released later this week could change that.

0:51 Canadian branch of SVB has assets temporarily seized

Small believes much of the fallout in the financial sector over the past few days could have been avoided if the Federal Reserve had been more cautious with its rate hikes.

“We’ve been saying all along that we haven’t seen any cracks in the armour … all of a sudden, we start to see a crack,” he said.

Meanwhile, energy stocks fell 4.6 per cent in Canada, helping bring the TSX down alongside weakness in financials.

Small said concerns over whether China’s reopening will lead to the expected uptick in demand have weighed on oil prices recently.

The Canadian dollar traded for 72.83 cents US compared with 72.43 cents US on Friday.

The April crude contract was down US$1.88 at US$74.80 per barreland the April natural gas contract was up 18 cents at US$2.61 per mmBTU.

The April gold contract was up US$49.30 at US$1,916.50 an ounceand the May copper contract was up two cents at US$4.05 a pound.

— With files from The Associated Press