Wall Street ended sharply lower on Thursday after U.S. consumer prices data came in hotter than expected and subsequent comments from a Federal Reserve official raised fears the U.S. central bank will hike rates aggressively to fight inflation. U.S. 10-year Treasury yields hit 2% for the first time since August 2019 and Canada’s 5-year government bond yield – which has a heavy influence on fixed mortgage rates – rose to its highest level in three years. Bond prices, which move opposite to yields, were left with sharp losses.
The TSX closed lower but with much more modest losses than in the U.S., as its heavy weighting in financial and energy shares helped it better handle the prospect of aggressive Federal Reserve interest rate hikes.
U.S. Labor Department data showed consumer prices surged 7.5% last month on a year-over-year basis, topping economists’ estimates of 7.3% and marking the biggest annual increase in inflation in 40 years.
U.S. stocks fell further after St. Louis Federal Reserve Bank President James Bullard said the data had made him “dramatically” more hawkish. Bullard, a voting member of the Fed’s rate-setting committee this year, said he now wanted a full percentage point of interest rate hikes by July 1.
“Inflation tends to be kryptonite to valuations. Higher inflation causes multiples to compress, and that’s what we’re experiencing right now,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
“Volatility is likely to remain until in the number and magnitude of Fed rate hikes is better known.”
Within minutes of Bullard comments, rate futures contracts were fully pricing an increase in the Fed’s target range for its policy rate to 1%-1.25% by the end of its policy meeting in June, with some bets on an even steeper rate hike path.
“This number re-emphasizes the sense of urgency for the Fed to act,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale In New York.
“The market is starting to price in a much more aggressive path of rate hikes and this really starts to increase the odds of perhaps a 50 basis points rate hikes at one of the meetings, but broadly speaking we’re pretty much fully priced in for a hike per meeting between now and July.”
The yield on 10-year Treasury notes was up 12.7 basis points to 2.054% late Thursday, after climbing to 2.056%, its highest since August 1, 2019.
Canada’s 10-year wasn’t far behind, yielding 1.946%. And the Canadian five-year bond was 1.824%, its highest since 2019, a move that is sure to put even more upward pressure on fixed mortgage rates. Five-year fixed rates below 3% are already becoming harder to find.
“Given that lenders benchmark fixed rates to bond yields, fixed mortgages will get more expensive. Uninsured 5-year fixed rates in the two per cent range could become fond memories within days,” Robert McLister, a mortgage specialist and Globe and Mail columnist, said Thursday.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 72.47 points, or 0.3%, at 21,531.72. Earlier in the day, the index moved within 12 points of the record intraday high it notched in November at 21,796.16.
“Toronto has got commodities and its got financial stocks and they don’t trade the same (as the U.S. market),” said Norman Levine, managing director, Portfolio Management Corporation. “Especially when interest rates are going up and inflation is going up.”
Rising interest rates help banks earn higher margins on their loans and reduce the long-term liabilities of insurance companies.
Financials, which account for one-third of the Toronto market, rose 0.3%, helped by a 5.5% gain for Brookfield Asset Management after the company said it is considering spinning off its asset management unit at a valuation of $70 billion to $100 billion.
That’s a move that could “unlock a higher multiple for the stock,” said Brandon Michael, senior investment analyst at ABC Funds.
Energy rose 0.6% as oil prices settled higher but all the other sectors ended lower, including 1.5% declines for information technology and consumer discretionary.
Shares of auto parts companies fell, including a 1.6% drop for Magna International Inc, as protesters blocking a vital U.S.-Canada trade route forced automakers in both countries to reduce operations.
Among the biggest decliners was Canada Goose Holdings Inc It ended 16% lower after the company cut its full-year forecasts.
In the U.S., megacap growth stocks Tesla Inc, Nvidia and Microsoft each lost around 3%.
The Dow Jones Industrial Average fell 1.47% to end at 35,241.59 points, while the S&P 500 lost 1.81% to 4,504.06.
The Nasdaq Composite dropped 2.1% to 14,185.64. It was the seventh time in 2022 that the Nasdaq lost more than 2% in a session.
The S&P 500 is now down about 5% in 2022, and the Nasdaq is down about 9%.
All of the 11 S&P 500 sector indexes declined, with technology, down 2.75%, and real estate, down 2.86%, leading the way lower.
Meanwhile, U.S. companies continued to report upbeat quarterly results. With 78% of the S&P 500 companies that have reported results beating analysts’ profit estimates, according to Refinitiv data.
Walt Disney Co rose 3.4% after beating revenue and profit estimates on strong subscriber additions and attendance at U.S. theme parks.
Barbie maker Mattel Inc and cereal maker Kellogg Co gained 7.65% and 3.11%, respectively, after forecasting full-year profits above market expectations.
Thursday’s session was busy. Volume on U.S. exchanges was 12.8 billion shares, compared with a 12.5 billion average over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 3.08-to-1 ratio; on Nasdaq, a 2.26-to-1 ratio favored decliners. The S&P 500 posted 31 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 55 new highs and 102 new lows.
Reuters, Globe staff
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
/cloudfront-us-east-1.images.arcpublishing.com/tgam/UE5GHEWK3BBEZLIYAXMVTYF2MI.JPG)
