The Toronto Stock Exchange had its worst day in more than two years on Thursday as investors faced the reality of sharply higher interest rates to bring down stubbornly high inflation.
The benchmark Canadian stock index lost 618 points to close below 19,000 for the first time since April 2021. In percentage terms, it was the worst day for Canada's stock market in two years.
The TSX followed the lead of stock markets around the world, which fell in unison after the Federal Reserve raised its trend-setting interest rate by 75 basis points on Wednesday, it's biggest single hike in 26 years.
The Swiss National Bank and the Bank of England followed suit on Thursday, raising their lending rates in an attempt to cool down overheated economies.
"The market is digesting what 75 points means and asking, can the Fed continue this aggressive cycle without triggering a recession?" said Brenda O'Connor-Juanas, a senior vice-president with investment banking firm UBS.
Super-sized hike expected in Canada
After hiking three times this year to raise its rate from 0.25 per cent as recently as March to 1.5 per cent now, investors are expecting the Bank of Canada will announce a super-sized rate hike of its own next month, bringing its rate to 2.25 per cent, a level not seen since before the financial crisis in 2009.
Stubborn inflation has sent a chill through stock markets recently as investors realize persistent higher prices will be a drag on profits as consumers are forced to find ways to cut back.
"We have an overheated economy and there's only one way to cool it off, and it's going to be painful," O'Connor-Juanas told CBC News in an interview.
All 11 sub-indexes of the TSX were lower, from energy to banking, and from health care to technology.
Things were even worse on Wall Street, where the Dow Jones Industrial Average lost 700 points or more than three per cent to dip below the 30,000 level for the first time since January of 2021.
"Those are psychological barriers," said Anthony Scilipoti, CEO of Toronto-based Veritas Investment Research. "The problem with selling is that it begets selling."
The broader S&P 500 had its worst day since September 2020, losing 123 points or more than three per cent.
Both the S&P and the technology-focused Nasdaq have both officially entered into bear markets, which means they have declined by 20 per cent or more from the peak.