The Canadian benchmark stock index fell heavily on Friday as the prospects of a global recession see investors sell first and ask questions later.
The S&P/TSX Composite Index fell more than 500 points, or more than three percent, to just below 18,500 in the afternoon, swept up by a plunge in oil prices.
The North American crude oil reference price lost $5 to trade below $80 for the first time since January. The catalyst for oil’s decline this week seems to have been central banks that have signaled that they are so committed to curbing inflation that they are willing to create a recession to achieve it.
The US Federal Reserve raised its benchmark rate on Wednesday, and nine other countries around the world followed suit the next day. That will help reduce inflation, but it will likely come at a high cost to the economy.
“Obviously what they’re saying is that they’re so determined to bring down inflation that they’re going to bring the economy down,” said John Zecher, the founder of Toronto-based money manager J Zechner & Associates. “That’s the way the market reads it… They won’t stop until the economy turns.”
About a fifth of the companies on the TSX are in the energy sector and were among the biggest losers on Friday. Shares in Suncor, Cenovus, MEG Energy and Crescent Point all lost more than eight percent on the day.
More and more economic indicators are beginning to indicate that the Canadian economy has already derailed or is about to derail. Last week’s employment data showed the economy has lost jobs for three months in a row, and retail sales data on Friday showed Canadians are putting their wallets back together.
Stock markets are reacting to that gloom, and some analysts believe much more pain is to come.
“The lows we recently saw in the summer months will be challenged in the coming days to weeks,” Larry Berman, chief investment officer at Toronto-based money manager QWealth, said in an interview. “The market [isn’t] priced for what the central banks are going to do.”
The Canadian dollar fell to 73.65 cents in the US, its lowest level in more than two years.
More to come