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S&P/TSX composite down slightly, U.S. stock markets slide after holiday Monday

Canada’s main stock index was down slightly Tuesday and U.S. markets also fell, as investors continue to make guesses about when central banks on either side of the border will start cutting interest rates.
A street sign along Bay Street in Toronto's financial district is shown on Tuesday, January 12, 2021.THE CANADIAN PRESS/Nathan Denette

Canada’s main stock index was down slightly Tuesday and U.S. markets also fell, as investors continue to make guesses about when central banks on either side of the border will start cutting interest rates.

The S&P/TSX composite index was down 38.08 points at 21,217.53.

In New York, the Dow Jones industrial average was down 64.19 points at 38,563.80. The S&P 500 index was down 30.06 points at 4,975.51, while the Nasdaq composite was down 144.87 points at 15,630.78.

In Canada, where markets were coming off a holiday Monday, the big news was Statistics Canada’s latest consumer price index report. The data showed Canada’s annual inflation rate fell to 2.9 per cent last month, a steeper-than-expected deceleration in price growth. 

The newest inflation reading suggests monetary policy in this country is having an impact on slowing the economy, and raises questions about how soon the Bank of Canada may be willing to pull the trigger on a rate cut.

The Bank of Canada has held its key rate steady at five per cent but many forecasters expect it could begin cutting interest rates around the middle of the year or even sooner.

 “We'll have to see what we hear from (Bank of Canada Governor) Tiff Macklem in a couple of weeks. We don't expect there to be a rate cut at the (central bank’s) next meeting,” said Lesley Marks, chief investment officer with Mackenzie Investments.

“But certainly, at the following meeting in April, there's a chance that the Bank of Canada could cut at that meeting.”

In the U.S., however, where markets were also closed Monday, expectations are increasing that the Federal Reserve could push its own interest rate cuts further out into 2024. Wall Street dipped Tuesday coming off of a heavy week of economic reports that hinted U.S. inflation is remaining stubborn and squeezing consumer spending.

Investors had been hoping for rate cuts in the U.S. as soon as March. But based on the latest batch of economic data, Wall Street is now betting on a possible rate cut in May and a likely rate cut in June, according to CME's FedWatch Tool.

Marks said it’s increasingly apparent that there are different outlooks on the potential timing for interest rate cuts, depending on whether you're talking about the U.S. or Canada.

“We do seem to be seeing in the U.S. that markets are thinking perhaps that rate cut is going to happen later rather than sooner,” she said.

“And I think the divergent views are justified, when you look at how our economy is performing versus the U.S. economy. The U.S. economy continues to be more resilient — it hasn’t reacted as much to higher interest rates.”

Technology stocks were a drag on U.S. markets Tuesday, as chipmaker Nvidia pulled back ahead of its earnings report this week. Nvidia, which has ridden a wave of investor enthusiasm over artificial intelligence and seen its stock price more than triple over the past year, lost 4.4 per cent in Tuesday’s trading.

While technology was also the worst-performing sector on the Toronto Stock Exchange on Tuesday, losing close to 1.6 per cent, it wasn't as much of a drag to the overall Canadian market due to the sector's relatively smaller footprint north of the border.

The Canadian dollar traded for 73.98 cents US compared with 74.16 cents US on Friday.

The April crude oil contract was down US$1.42 from Friday at US$77.04 per barrel, while the March natural gas contract was down three cents at US$1.58 per mmBTU.

The April gold contract was up US$15.70 from Friday at US$2,039.80 an ounce and the March copper contract was up three cents at US$3.87 a pound.

This report by The Canadian Press was first published Feb. 20, 2024.

— With files from The Associated Press

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

Amanda Stephenson, The Canadian Press