North American stock markets suffered broad-based declines Monday, continuing the downward momentum that's been the story for equities since the start of December.
The S&P/TSX composite index was down 242.52 points at 19,200.76.
In New York, the Dow Jones industrial average was down 162.92 points at 32,757.54. The S&P 500 index was down 34.70 points at 3,817.66, while the Nasdaq composite was down 159.38 points at 10,546.03.
It’s been a difficult month for equities markets, with the TSX down more than five per cent since the start of December. U.S. markets have also lost ground, defying the historical trend for North American stock markets to enjoy a so-called Santa Claus rally in the last month of the calendar year.
Anish Chopra, managing director with Portfolio Management Corp., said investors have been worried all year about inflation and whether central bankers' efforts to curb it through interest rate hikes would ultimately trigger a recession.
That fear has come to the forefront in the final weeks of 2022. Last week, the U.S. Federal Reserve raised its forecast of how long interest rates have to stay elevated to cool inflation that has been hurting businesses and threatening spending. The European Central Bank also warned that more rate hikes are coming.
The result, Chopra said, is that many investors now believe that interest rates won't come down fast enough to avoid a so-called hard landing, even as economic growth is already beginning to slow due to inflationary pressures.
“The way to look at it is you’ve still got inflation between six and eight per cent. The central banks want inflation around two," Chopra said.
"So either the central banks will have to increase their inflation target, or rates will have to stay higher for longer to get that rate down closer to where they want it.”
Most analysts are now predicting there will be some degree of economic recession in 2023. Bond yield curves remain inverted, a historically reliable indicator of difficult economic times ahead.
However, Chopra said the length and severity of a possible recession remain unknown.
"Part of that will depend on how resilient the economy is, and how quickly inflation comes down," he said.
"But as of now, the central banks have basically said interest rates will continue to rise until inflation is under better control.”
On the TSX, all industry sectors closed in the red on Monday.
The hardest hit was the S&P/TSX small-cap index, which was down 2.69 per cent, and the S&P/TSX capped health care index (which contains the volatile marijuana stocks and was down 3.24 per cent on the day).
The Canadian dollar traded for 73.24 cents US compared with 73.06 cents US on Friday.
The February crude contract was up 92 cents at US$75.38 per barrel and the January natural gas contract was down 75 cents at US$5.85 per mmBTU.
While most Canadian energy stocks still closed in the red, Monday's higher crude prices did help a handful — including Canadian Natural Resources Ltd. and Imperial Oil Ltd. — gain ground. (CNRL closed up 1.1 per cent while Imperial was up 0.2 per cent).
The February gold contract was down US$2.50 at US$1,797.70 an ounce and the March copper contract was up two cents at US$3.78 a pound.
This report by The Canadian Press was first published Dec. 19, 2022.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)
Amanda Stephenson, The Canadian Press
