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Canadian and US stock markets down sharply after Powell speech

North American stock markets fell sharply on Friday as investors reacted negatively to a speech by Federal Reserve Chairman Jerome Powell in which he said he expects interest rates to remain high in his fight against inflation.

The S&P/TSX Composite Index lost 299.05 points to 19,873.29.

In New York, the Dow Jones industrial average fell 1,008.38 points to 32,283.40. The S&P 500 index fell 141.46 points to 4,057.66, while the Nasdaq composite fell 497.56 points to 12,141.71.

Financial markets had been waiting all week for Powell’s highly anticipated speech at what is an annual meeting of US central bankers in Jackson Hole, Wyo.

Investors had hoped Powell would use his remarks to signal the Fed’s readiness to start easing its interest rate hike cycle — perhaps even reversing some of its hikes already instituted as early as 2023.

That’s not what happened, however. Powell’s speech was much more hawkish, as he made it clear that interest rates will have to keep rising and stay high for longer than many investors had hoped.

“It’s been more explicit than it has been at any other time that rates are going to stay higher for a much longer period in order to fight inflation,” said Mike Archibald, vice president and manager. portfolio manager at AGF Investments Inc.

“It has put some pressure on various parts of the capital markets, and certainly on equities today.”

Growth stocks such as technology, which are more interest rate sensitive, were the hardest hit. The S&P/TSX capped technology index was down 4.39%, and the healthcare index – home to riskier cannabis stocks – was down 5.05% late in the day.

But there wasn’t a single sector on the Toronto Stock Exchange that didn’t end in the red on Friday, and south of the border all but six of the benchmark S&P 500 companies ended. in negative territory.

Commodities were also affected, with gold falling significantly. The US dollar rose significantly against most major currencies, the 10-year Treasury yield, which tracks expectations for longer-term economic growth and inflation, rose to 3.04% from 3.03 % Thursday evening.

In his speech, Powell acknowledged that interest rate hikes will hurt households and businesses. But he also said the pain would be far greater if inflation was allowed to fester and that “we have to keep going until the job is done”.

“There’s no easy way out, clearly,” Archibald said, acknowledging that central bank fiscal tightening policies have historically not been good for stock markets.

“I think we are going to have periods of volatility as rates continue to tighten,” he added. “I think it’s probably going to be a bit choppier market for the foreseeable future, until we get closer to the end of the hiking cycle.”

While Powell’s speech and the reaction to it were the main stories of the day, in Canada, a Waterloo-based tech company saw its share value plummet following an acquisition announcement. major.

OpenText, which on Thursday evening announced plans to acquire US-based Micro Focus International plc in a deal valued at $6 billion, has seen its share price fall more than 14% in trading in Friday, making it the worst performance of the day on the S&P/TSX composite. .

Archibald said investors were skeptical of the 100% premium OpenText is paying for the British tech company, as well as the $4.6 billion in new debt it will take on to fund the deal.

“The market clearly doesn’t like this acquisition today,” Archibald said.

The Canadian dollar was trading at 76.99 cents US against 77.30 cents US on Thursday.

The October crude contract was up 54 cents at US$93.06 per barrel and the October natural gas contract was down 7.5 cents at US$9.27 per mmBTU.

The December gold contract was down US$21.60 at US$1,749.80 an ounce and the September copper contract was down less than a penny at US$3.70 the pound.

This report from The Canadian Press was first published on August 26, 2022.

— With files from the Associated Press

Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)

Amanda Stephenson, The Canadian Press