North American stock markets partially recover from early crypto-induced losses

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TORONTO — North American stock markets partially recovered from a morning dip fuelled by a big pullback in cryptocurrency followed by the Federal Reserve later indicating it could soon discuss tapering stimulus.

The day started with a so-called flash crash as cryptoassets plunged by at least 30 per cent partially on news about China regulating how cryptocurrencies can be held in the country.

But then investors bought the dip, especially in tech stocks.

"I think it's setting up to be a positive sentiment day as people will feel better because when you came in this morning and looked at the open it looked like it could have been a lot worse," said Greg Taylor, chief investment officer of Purpose Investments.

He said the bounce-back is a win "for the bulls in the market."

"We've got people coming back to deploy assets and it's just a reminder that there's so much cash in the system from the stimulus, that money is being spent and people are still apt to buy the dip on stocks when we get a down open," he said in an interview.

The S&P/TSX composite index closed down 90.02 points from Tuesday's record high to 19,417.03 after dropping as much as 282 points.

In New York, the Dow Jones industrial average was down 164.62 points at 33,896.04 after losing as much as 589 points. The S&P 500 index was down 12.15 points at 4,115.68, while the Nasdaq composite was down 3.90 points at 13,299.74.

The rally was tempered after minutes from the Federal Reserve's recent meeting indicated that a strong boost in economic activity may prompt the central bank to soon discuss tapering its stimulus.

"A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases," the Fed minutes stated.

Taylor said most people expected that these discussions might start later this summer. Suggestions they may come sooner caused bond yields to move higher and caused a bit of a stall on the rally.

"But the markets are still well off the lows and I think this is still going to be a bit of a win but that's going to be the big thing to watch," he said in an interview.

Seven of the 11 major sectors on the TSX were lower, led by commodities.

Energy lost three per cent as crude prices dropped despite a small increase in U.S. inventories. Oil prices were affected by prospects that a potential Iranian nuclear deal would get their crude back on the global market.

"I still think oil over $60 is a big win," said Taylor.

The July crude oil contract was down US$2.15 at US$63.35 per barrel and the June natural gas contract was down five cents at US$3.03 per mmBTU.

Shares of Vermilion Energy Inc. fell 4.4 per cent, followed by a 3.9 per cent decline for Canadian Natural Resources Ltd. and 3.8 per cent dip for Suncor Energy Inc.

The Canadian dollar traded for 82.64 cents US compared with 82.98 cents US on Tuesday.

It fell on lower crude prices and the annual pace of inflation rising to 3.4 per cent in April, its highest level in nearly a decade.

Taylor said the data shows that the Bank of Canada was on the right path by already talking about tapering its stimulus measures, even before the Fed gets there.

Materials was off 1.9 per cent despite higher gold prices.

The June gold contract was up US$13.50 at US$1,881.50 an ounce and the July copper contract was down 14.9 cents at nearly US$4.58 a pound.

Teck Resources Ltd. were down 9.8 per cent, followed by First Quantum Minerals Ltd. at 8.5 per cent.

Technology led on the day as shares of Shopify Inc. climbed 3.9 per cent on the day.

The move higher in a generally down day is a good sign, said Taylor.

"It could be starting to show some of the strength coming back to the tech stocks and I think that could be a good leading indicator to get people more bullish on the bounce."

This report by The Canadian Press was first published May 19, 2021.

Companies in this story: TSX:SHOP, TSX:FM, TSX:TECK.B, TSX:APHA, TSX:VET, TSX:CNQ, TSX:SU, (TSX:GSPTSE, TSX:CADUSD=X)

Ross Marowits, The Canadian Press

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