Nasdaq correction, slumps for S&P 500, Dow Jones, S&P/TSX Composite
Equities slumped Thursday with a correction for the Nasdaq which ended the session down 2.6%, the S&P 500 falling below its 200-day moving average for a time, marking its lowest level since November, before closing down 1.8%, and the Dow Jones down 1% at the closing bell.
Canada’s S&P/TSX Composite Index ended the session down more than 1% as the markets reacted to a newly announced pause on tariffs for those imports from Canada and Mexico that are covered by the USMCA trade agreement.
Greg Taylor, chief investment officer at Purpose Investments told the Canadian Press that tech-heavy investors had pulled back from the crowded trade.
“Now we're seeing a pretty big sector rotation going on beneath the indices, moving more towards defence,” he said, adding that the volatility seen this week is “the new normal” and that equities are “collateral damage” for Trump’s policies.
Taylor also suggested the BoC could surprise the market with a jumbo cut at next week’s interest rate decision, adding to the voices that are predicting a pre-emptive strike from Governor Tiff Macklem.
The loonie rallied Thursday, but with tariffs still ahead it’s unlikely to be an enduring winning streak, as noted by Scotiabank’s chief currency strategist Shaun Osborne.
“The temporary reprieve from 25% tariffs should allow the CAD to strengthen somewhat in the short run, but scope for gains is probably limited to the 1.4200 to 1.4250 area in the short run,” he said.
President Trump dismissed the suggestion that the slump for equities was due to his uncertain tariffs policy and laid the blame with globalist countries and companies.
“I think it’s globalists that see how rich our country’s going to be, and they don’t like it,” he said in a press conference in the Oval Office.
While there was ambiguity about the meaning of the term ‘globalists’ in the context that the president was using it, he doubled down on his message that America has been treated unfairly by trading partners, but that was changing.
Later, he made it clear that his latest pause on tariffs with America’s neighbours was not in response to the current weakness of the markets.
“Nothing to do with the market. I’m not even looking at the market, President Trump stated.
Investors most certainly are looking at the market, and right now they don’t like what they are seeing.
Chris Larkin at E*Trade from Morgan Stanley said trade policy is dominating market action and “until the tariff smoke clears, it could continue to be a bumpy ride for traders and investors.”
In early trading Friday, global stocks followed Wall Street lower.
Markets are awaiting the US labour market report for signs of the strength of the economy, while the Fed’s Jerome Powell is due to speak later. Fed governor Christopher Waller said Thursday that he doesn’t see rate cuts this month but that there should be room for two or three during the year. Canadian jobs data is also incoming.
US investor sentiment weak
CNN’s Fear and Greed Index moved deeper into ‘extreme fear’ territory, where it has been for more than a week having fallen steadily from a neutral position mid-February. The last time it was in the ‘Greed’ segment was the first week of December. There are several elements to the index but the bottom line is, the worse the fear, the more likely share prices are to fall.
Meanwhile, the AAII Sentiment Survey, a weekly barometer of confidence in the stock market based on telephone research with retail investors, reveals that bullish sentiment (expectation that stock prices will rise over the next six months) was down slightly to 19.3%, well below its 37.5% historical average.
Bearish sentiment was down 3.5 points but at 57.1% remains well above its historical average of 31%. Neutral sentiment was up 3.6 points at 23.6%, below its 31.5% historical average.
