Canada’s main stock index closed down over 150 points Friday, with U.S. indexes also posting losses, as the globe continued to grapple with a crisis of confidence in the financial system triggered by two U.S. bank failures.
“This crisis was a bit of a sucker-punch to the market,” said Pierre-Benoit Gauthier, assistant vice-president of investment strategy at IG Wealth Management.
The S&P/TSX composite index was down 151.29 points at 19,387.72, and closed out the week down almost two per cent as oil prices tanked.
In New York, the Dow Jones industrial average was down 384.57 points, or 1.2 per cent, at 31,861.98.The S&P 500 index was down 43.64 points, or 1.1 per cent, at 3,916.64, while the Nasdaq composite was down 86.76 points, or 0.7 per cent, at 11,630.51.
Investors flocked to gold, a historical safe haven, noted Gauthier, and gold prices rose steadily amid the chaos, nearing US$2,000 on Friday.
Meanwhile, investors with a diversified portfolio were shored up against major losses as the correlation between bonds and stocks broke down, he said.
Stocks were down this week but fixed-income values went up, a marked difference from last year when both types of investments did poorly, said Gauthier.
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The market started pricing in not only a more dovish decision from the Federal Reserve next week but also potential for multiple rate cuts in the near future, a significant difference from what it was expecting just a week ago.
“Earlier in the year, when people were expecting cuts … we thought that it was overshooting,” said Gauthier. “But now the situation has changed so much.”
Gauthier said it’s now fair to believe the Fed could hike rates by a quarter of a percentage point next week as the last hike in its tightening cycle, or even surprise investors with a pause.
“We still expect 25 basis points, but the market is really on the fence,” he said.
As for cuts, it’s too soon (and too volatile) to tell, but one thing is for sure _ if the Fed does cut rates in 2023, it won’t be for positive reasons, Gauthier said.
“It will mean that the economy has been much weaker than expected,” he said.
Despite the doomsday headlines and sinking bank stocks, U.S. indexes closed out the week up from last Friday, with the Dow eking out a gain while the S&P 500 was up 1.4 per cent and the Nasdaq 4.4 per cent.
The potential for lower interest rates is good news for tech, and investors have likely been snapping up shares in the big tech stocks as safe investments, said Gauthier.
“For the banks, it’s been a hellish week,” he said, but for some other companies and sectors it’s actually been the opposite, with interest-rate confidence outpacing fear.
“This is a stock-picker’s market,” said Gauthier. “There’s going to be winners and losers.”
The Canadian dollar traded for 72.81 cents US, compared with 72.76 cents US on Thursday.
The May crude contract was down US$1.59 at US$66.93 per barreland the April natural gas contract was down 18 cents at US$2.34 per mmBTU.
The April gold contract was up US$50.50 at US$1,973.50 an ounce and the May copper contract was up three cents at US$3.89 a pound.
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