TORONTO — Shopify Inc. ceded its claim as the leading stock in Canada as the technology sector led North American stock markets lower after the U.S. Federal Reserve signalled it could be more aggressive in removing stimulus.
The Royal Bank of Canada returned to its top perch as the country's most valuable company as its shares gained while the Ottawa-based e-commerce firm's stock price fell.
Shopify has been favoured during the COVID-19 pandemic as online shopping surged during lockdowns and work-from-home flourished.
But rising interest rates and bond yields are hard on tech stocks.
"I don't think there's anything wrong, necessarily, with Shopify, but the valuations are pretty rich in an environment where multiples on high growth stocks is likely to compress," said Mike Archibald, vice-president and portfolio manager with AGF Investments Inc.
"If you're of the mindset that rates are going to go up, there's probably going to be more pressure on technology and things like financials and banks are going to do well in that environment."
Shopify's shares fell by 13.4 per cent over the first two trading days of the year, losing another 2.5 per cent Wednesday as the sector lost 3.7 per cent with shares of Docebo Inc. losing 12.7 per cent and Hut 8 Mining Corp. off 12.6 per cent.
Shopify became the most valuable company by market capitalization in May 2020 and only briefly switched positions with Royal last March.
Its latest fall came as a result of higher bond yields and then the release of Fed minutes from its December meeting that pointed to a quicker pullback on stimulus and raising of interest rates.
"The Fed seems to think that we are closer to maximum employment here so the market priced in immediately 80 per cent chance of a hike now in March," Archibald said in an interview.
"So I think the message the markets are taking today is the hiking cycle seems like it might be earlier and faster than perhaps thought originally, and so that's, I guess, taking a little bit of the risk out of this market."
The S&P/TSX composite index closed down 196.86 points to 21,039.66 after rising by as much as nearly 83 points.
In New York, the Dow Jones industrial average was down 392.54 points at 36,407.11. The S&P 500 index was down 92.96 points at 4,700.58, while the Nasdaq composite lost 522.55 points or 3.3 per cent at 15,100.17.
Nine of the 11 major sectors on the TSX were lower as all lost more than one per cent. Health care dropped four per cent as Tilray Inc. lost 6.6 per cent.
Real estate decreased 1.9 per cent with shares of H&R Real Estate Investment Trust down nearly 20 per cent.
Materials was down 1.5 per cent despite a rise in gold prices as Lithium Americas Corp. dropped 7.5 per cent.
The February gold contract was up US$10.50 at US$1,825.10 an ounce and the March copper contract was down 6.2 cents at US$4.41 a pound.
Energy was the leading sector on the day, along with telecommunications.
Energy climbed 0.5 per cent as crude oil prices rose closer to US$80 a barrel as the Fed's outlook for a strong economy dovetailed with OPEC's view a day earlier that oil demand would continue to strengthen on the belief that the Omicron variant is peaking.
"It's a bit of a rotation trade ... out of some of the growthier, more speculative areas of the market and then into things that you are likely to benefit from both the hiking cycle as well as improving economy," Archibald said.
The February crude oil contract was up 86 cents at US$77.85 per barrel and the February natural gas contract was up 16.5 cents at US$3.88 per mmBTU.
Shares of Crescent Point Energy Corp. increased 3.3 per cent.
The Canadian dollar traded for 78.63 cents US compared with 78.69 cents US on Tuesday.
This report by The Canadian Press was first published Jan. 5, 2022.
Companies in this story: (TSX:SHOP, TSX:RY, TSX:CPG, TSX:DCBO, TSX:HUT, TSX:LAC, TSX:HR.UN, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press