Canada’s main stock market nudged southward in trading on Tuesday, in line with a bigger dip in U.S. markets.
Stocks tumbled as worries about the banking system and the global economy injected more caution into financial markets worldwide. Bank stocks helped lead the market lower after Moody’s cut the credit ratings for 10 smaller and mid-sized financial institutions.
“It seemed like a lot of the issues that were raised during the March banking crisis were ignited — higher yields, potential regulation, and then, of course, some risks around exposure to commercial real estate,” said Mona Mahajan, senior investment strategist with Edward Jones.
“I think that group has been under pressure today, in both the U.S. and it looks like in Canada, financials are somewhat lower across the board.”
The S&P/TSX composite index fell 30.06 points to 20,205.98, dragged down by metals and financials stocks.
In New York, the Dow Jones industrial average dropped 158.64 points to 35,314.49. The S&P 500 index was down 19.06 points at 4,499.38, while the Nasdaq composite was down 110.07 points at 13,884.32.
The Moody’s downgrade had a ripple effect in Canada, where the sentiment around financials was more cautious on Tuesday, Mahajan said.
“Canadian banks tend not to have much commercial real estate exposure, but ΓÇª they’re also facing higher rates, asset liability, mismanagement, potential for more regulation,” she said.
“I think generally, in the U.S. and Canada, if the economy is softening, financials tend to be more cyclical in nature and they tend to not do as well in those environments.”
Earnings season also continued, with 89 per cent of companies listed on the S&P 500 index having reported for the quarter as of Tuesday. Of those, nearly 80 per cent have positively surprised on the bottom line, by an average of 7.5 per cent, said Mahajan.
While it has marked the third straight quarter of negative year-over-year earnings growth, results so far have indicated a gradual recovery could be unfolding.
“That’s a better environment broadly,” said Mahajan.
“We think if earnings are growing, central banks are potentially pausing and maybe even pivoting lower next year, and inflation is moderating, that will be welcomed news.”
The Canadian dollar traded for 74.32 cents US compared with 74.88 cents US on Friday.
The September crude oil contract was up 98 cents at US$82.92 per barrel and the September natural gas contract was up five cents at US$2.78 per mmBTU.
The December gold contract was down US$10.10 at US$1,959.90 an ounce and the September copper contract was down seven cents at US$3.77 a pound.
With files from The Associated Press
This report by The Canadian Press was first published Aug. 8, 2023.