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
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TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
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