Stock markets had their worst day in months as rate hikes and high inflation spooked investors

Stock markets around the world fell on Thursday as investors grappled with the prospect of persistently high inflation and much higher borrowing costs to combat it.

The main index of the Toronto Stock Exchange closed just below 20,700, down nearly 500 points or 2.3 percent with all sectors in the benchmark Canadian stock market down on the day.

Shares of Ottawa-based e-commerce giant Shopify led the decline, losing 14 percent of their value on the day. The company, which reports in US dollars, announced before the markets opened that it had lost US$1.5 billion in the first quarter. That’s a reversal of a $1.3 billion dollar gain in the same period a year ago.

At one point in the pandemic, Shopify was the most valuable company in Canada, worth more than $200 billion. It is worth about a quarter of that peak today, as the company that saw demand for its services explode during the pandemic is now dealing with a revenue slowdown.

“The easing of lockdowns is driving higher consumer spending on retail, services and travel,” said Daniel Chan, an analyst at TD Bank who covers the company. “These changing spending patterns are a headwind for Shopify.”

The sell-off was worst in New York, with the Dow Jones Industrial Average shedding more than 1,000 points or more than three percent, and the tech-heavy Nasdaq the worst of all, down more than 600 points or five percent. . .

Tech stocks bear the brunt

Former high-flying tech stocks like Apple, Microsoft, Amazon, Google and Tesla fell between four and seven percent on the day.

“Large-cap technology, media and telecom stocks are deflating from their pandemic bubble peak, but the group still has more air to lose amid rising interest rates and cooling growth expectations,” he said. Gina Martin Adams, chief equity strategist at Bloomberg Intelligence.

The gloomy mood came on the heels of the US central bank’s decision to raise its interest rate on Wednesday, its biggest single move higher in 22 years.

That will increase the cost of borrowing, which is bad news for companies and stock investors looking to buy them. The Bank of England also raised its lending rate on Thursday and warned of “stagflation”, which is when an economy faces high inflation but also slow growth.

Brenda O’Connor-Juanas, a senior vice president at Miami-based UBS, told CBC News Thursday that investors are reacting to a deluge of troubling news, from supply chain issues to the ongoing pandemic and uncertainty. in Ukraine.

“Markets right now by and large are just responding and reacting to every negative headline,” he said.

“There’s so much uncertainty about inflation and rates … we’re going to see the markets move a lot like that,” he said. “Volatility is here to stay.”

John Zechner, president of the Toronto-based investment firm J Zechner Associates, says the sell-off is happening because investors are realizing that lending rates will have to get much more expensive, and quickly, in order to control inflation. .

“It’s taking the blow off,” he said in an interview on Friday. “Free money has effectively sustained this bull market for the last 12 years, and we’re probably seeing the most aggressive move away from free money we’ve seen in over 20 years.”

“The only way to control inflation is to try to slow growth or tighten the economy a little bit,” Zechner said. “And one of the victims is the stock market.”

The value of bitcoin, which has been heralded as an inflation hedge, plummeted along with everything else, shedding about 6 percent or more from $3,000 to change hands below $37,000. That is half of what the world’s largest cryptocurrency was worth in November and its lowest level since January.

Other cryptocurrencies joined the sell-off as investors moved their cash out of the volatile sector and into assets that were considered safer.

Globally, $120 million was withdrawn from cryptocurrencies in the week to May 5, according to data from digital investment firm Coinshares. Over the past month, the total jumps to $339 million.

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