Canada’s stock index fell by triple digits on Thursday as investors grew more concerned about a looming recession and reacted to news of negative earnings from two major U.S. financial services companies.
The S&P/TSX Composite closed 286.13 points lower, or 1.54%, at 18,329.06.
Markets in New York were mixed, but all three major indexes eventually closed off their lows for the day. The S&P 500 finished 0.30% lower, the Dow lost 0.46% and the Nasdaq narrowly edged into positive territory with a gain of 0.03%.
Earnings at Wall Street banks started to rise on Thursday and gave a glimpse into their views on the outlook for the US economy.
JPMorgan Chase & Co. halted share buybacks and profit fell short of estimates for the second quarter. Chief executive Jamie Dimon said the bank needed to increase its capital buffer to prepare for a range of possible economic scenarios.
That warning rattled Canadian bank stocks. The TSX’s financials subsector was the index’s biggest drag on Thursday.
“What we want to see this earnings season is to what extent any sort of economic slowdown is reflected in actual earnings.” And to what extent, from a U.S. perspective, of course, the strength of the dollar affects earnings,” Diana Avigdor, portfolio manager and head of trading at Barometer Capital Management, said in an interview Thursday.
“We’ll have to see what rising interest rates do to demand for loans, demand for mortgages, housing and things like that to make a full assessment.” However, Canadian banks are known to be quite stable as dividend payers and markets are now looking or investors are now looking for a safer trade.
Battling the broader market direction on Thursday were cannabis stocks. Tilray Brands Inc., Aurora Cannabis Inc. and Canopy Growth Corp. were among the best performing companies on the TSX.
Marijuana stocks got a boost after U.S. Senate Democrats planned to introduce a bill to federally decriminalize marijuana, though the legislation faces a challenging path to approval through a divided chamber.
Organigram Holdings Inc. reported that third-quarter gross revenue increased 90% last quarter compared to a year ago, although it still reported a loss of $2.8 million. The company said new products and improved sales momentum helped boost its top line. Shares closed a cent higher Thursday at $1.39.
The WTI crude oil benchmark sank $0.52 to $95.78 a barrel. Earlier in the trading day, oil fell to $91.86 a barrel, the lowest level since Russia’s invasion of Ukraine.
Eric Theoret, global macro strategist at Manulife Investment Management, said lower crude oil prices are an important component in the Bank of Canada’s path to lower inflation.
“Central banks have tightened, growth is expected to slow and commodities are correcting, so I think that’s all part of the process that central banks are trying to achieve in terms of reducing inflation, and a key component of that is the price of energy,” Theoret said in an interview Thursday.
“Weakness in crude oil is actually desired by central banks at this point, given how important it is to this latest spike in inflation that we’re seeing in the headline numbers.”
Theoret added that when the central bank starts controlling inflation, both the material and energy sectors will start to weaken.
“Canada is starting to suffer and you really only have to look at the currency to see, you know, that weakness is really materializing,” he said.
The Canadian dollar ended lower at 76.30 US cents on Thursday.
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