The major Canadian stock index fell more than 150 points on Friday, while the US index also posted a loss. This is as the world continues to grapple with the crisis of confidence in the financial system caused by her two bank failures in the United States.
“This crisis was a bit of a blow to the market,” said Pierre-Benoît Gauthier, vice president of investment strategy at IG Wealth Management.
The S&P/TSX Composite Index fell 151.29 points at 19,387.72, ending the week down nearly 2% as oil prices crashed.
In New York, the Dow Jones Industrial Average fell 384.57 points (1.2%) to 31,861.98. The S&P 500 Index fell 43.64 points (1.1%) to 3,916.64. percent, 11,630.51.
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Investors flocked to gold, a historical safe haven, and the price rose steadily amid the turmoil, approaching US$2,000 on Friday, according to Gauthier.
Meanwhile, investors with diversified portfolios were gearing up for big losses as the correlation between bonds and equities broke down, he said.
Equities have fallen this week, but bonds have risen in value, a marked contrast from last year when both types of investments failed, Gautier said.
Markets have started pricing in not only a more dovish decision by the Federal Reserve next week, but also the possibility of multiple rate cuts in the near future. This is very different from what we expected just a week ago.
“Earlier this year, when people were expecting a rate cut, we thought it went too far,” Gautier said. “But things have changed a lot now.”
Gautier said it was reasonable to think the Fed could raise rates by half a percentage point next week as the final rate hike in the tightening cycle.
“We’re still expecting 25 basis points, but the market is really maxed out,” he said.
As for rate cuts, it’s too early (and too volatile) to tell, but one thing’s for sure: If the Fed cuts in 2023, it won’t be for positive reasons, Gauthier said. says.
“That would mean the economy is much weaker than expected,” he said.
Despite the Doomsday headlines and the decline in bank stocks, US indices have risen since last Friday, with the Dow up, the S&P 500 up 1.4% and the Nasdaq up 4.4%.
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Potentially low interest rates are good news for tech, and investors are likely buying up stakes in big tech stocks as a safe bet, Gauthier said.
“It’s been a hell of a week for banks,” he said, but for several other companies and sectors it’s actually the opposite, with interest rate confidence outweighing fear.
“This is a stock picking market,” Gauthier said. “There will be winners and losers.”
The Canadian dollar traded at 72.81 cents compared to 72.76 cents on Thursday.
Crude oil contracts fell US$1.59 in May to US$66.93 per barrel. April’s natural gas contract dropped his 18 cents to US$2.34 per mmBTU.
The April gold contract was $1,973.50 an ounce, up $50.50, while the May copper contract was $3.89 a pound, up 3 cents.
© 2023 The Canadian Press
