S&P/TSX composite falls from record highs on rising bond yields after Fed comments

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TORONTO — Canada's main stock index pulled back from record highs on weakness in the energy and technology sectors amid rising bond yields.

"The 10-year (treasury) is really driving the shop today," said Allan Small, senior investment adviser at IA Private Wealth. "It spiked higher after the Fed's commentary yesterday and it hasn't looked back."

The U.S. 10-year bond yield climbed as much as 1.754 per cent, its highest level since January 2020, before settling at 1.706 per cent.

The bond markets responded to Federal Reserve chairman Jerome Powell saying that the U.S. central bank isn't overly concerned about rising inflation and isn't prepared to discuss removing monetary stimulus in the market right now.

Stock markets rose into Wednesday's close but dropped the next day when tech stocks lost ground.

Rising bond yields have a big effect on the technology sector, since companies with high valuations do better in a low interest rate environment.

"As interest rates rise, getting closer now to two per cent, all of a sudden these valuations start to look a little bit more expensive," Small said in an interview.

The S&P/TSX composite index closed down 146.63 points to 18,836.47, a day after surpassing 19,000 for the first time.

In New York, the Dow Jones industrial average was down 153.07 points at 32,862.30 despite setting a record intraday high. The S&P 500 index was down 58.66 points at 3,915.46, while the tech-heavy Nasdaq composite was down 409.03 points or three per cent to 13,116.17.

Canada's tech sector lost nearly two per cent as shares of Lightspeed POS Inc. fell 6.5 per cent, BlackBerry Ltd. was down 6.1 per cent and Shopify Inc. lost 3.7 per cent.

Nine of the 11 major sectors on the TSX were lower, led by energy which fell 5.2 per cent as crude oil prices plunged eight per cent. That pushed Vermilion Energy Inc. down 9.1 per cent and Enerplus Corp. off 8.5 per cent.

The May crude oil contract was down US$4.57 to US$60.06 per barrel and the April natural gas contract was down 4.7 cents at US$2.48 per mmBTU.

The decrease came a day after a report that U.S. stockpiles increased last week to the highest level since December and the International Energy Agency gave a downbeat assessment of crude markets in its monthly report.

It said that oil is fairly priced and didn't see upside potential because demand isn't going to exceed supply, Small said.

The Canadian dollar traded for 80.27 cents US compared with 80.22 cents US on Wednesday.

Health care fell as shares of cannabis producers dropped with Aphria Inc. down 6.3 per cent and Aurora Cannabis Inc. five per cent lower.

Materials also decreased despite higher gold prices as Centerra Gold Inc. lost 8.2 per cent.

The April gold contract was up US$5.40 at US$1,732.50 an ounce and the May copper contract was down 1.1 cents at nearly US$4.11 a pound.

The heavyweight financials sector followed the trend in the U.S. to increase on higher yields with shares of several Canadian banks up about one per cent.

Industrials was also up.

"On a day like today where it seems as though it's not as much of a risk-on day, people are more moving to value names like banks which are feeding off of a higher yield," said Small, adding that the U.S. dollar enjoyed a big move higher.

He downplayed the impact of U.S. jobless claims rising by 45,000 last week to 770,000.

"Everyone is expecting things to get better over time and a one week's jobless number I don't think is going to derail what we anticipate."

This report by The Canadian Press was first published March 18, 2021.

Companies in this story: (TSX:CG, TSX:LSPD, TSX:BB, TSX:SHOP, TSX:APHA, TSX:ACB, TSX:VET, TSX:ERF, TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press