Canada’s main stock index took a hit on Wednesday, dragged down by technology stocks, after a key U.S. inflation report dampened hopes for interest rate cuts by the Federal Reserve this year. The S&P/TSX Composite Index dropped 0.46%, closing at 25,514.73, as investors reacted to the latest economic data from the U.S.
New figures revealed that U.S. consumer prices rose more than expected in January, reinforcing the Federal Reserve’s cautious stance on rate cuts. With inflation still running above the 2% target, the Fed has signaled that it is in no hurry to lower interest rates, adding to the market’s uncertainty.
“Inflation is not behaving in a way that suggests the Fed will cut rates, and that is incrementally bad news for the markets for now,” said Angelo Kourkafas, an investment strategist at Edward Jones Investments.
Before the report, traders had expected the Fed to deliver two 25 basis point rate cuts this year. Now, expectations have shifted, with markets pricing in only one cut, as per data from LSEG.
However, Kourkafas pointed out that while the data hurts short-term market sentiment, it doesn’t necessarily mean the Fed will pivot toward rate hikes.
Among the hardest-hit sectors on the TSX was information technology, which declined 1.6%. One of the biggest losers was e-commerce giant Shopify (SHOP.TO), whose stock fell 3.6%, contributing significantly to the tech sector’s struggles.
The real estate sector also saw declines, slipping 0.6%, as Canada’s 10-year benchmark yield climbed to 3.171%, following the U.S. bond market’s reaction to the inflation data.
Amid the broader market downturn, the materials sector stood out, gaining 0.4%, thanks to a strong performance by Barrick Gold (ABX.TO). The gold mining giant’s stock jumped 5.6% after the company announced a $1 billion share buyback program and posted better-than-expected fourth-quarter earnings.
One of the worst performers of the day was TerraVest Industries (TVK.TO), which saw its stock plunge 12.4% after the home-heating products manufacturer missed its fourth-quarter revenue estimates. The disappointing earnings report pushed TerraVest to the bottom of the TSX.