North American markets all lost ground Thursday as U.S. government bond yields hit a seven-year high on more news confirming the strength of the American economy.
The move by the 10-year U.S. Treasury yields is a big deal, said Kash Pashootan, CEO and chief investment officer at First Avenue Investment Counsel Inc.
The level follows clear confirmation by U.S. Federal Reserve Chairman Jerome Powell that interest rates will gradually increase for the foreseeable future.
“The speculation or the doubt that existed before in terms of the frequency of how rates will go up was put to rest yesterday with Fed Chairman Powell’s comments,” Pashootan said in an interview.
That assessment comes ahead of an anticipated big beat in Friday’s jobs report.
“The big surprise is that interest sensitive equities are in fact not selling off with the news that the rates are going higher, which is counterintuitive,” said Pashootan.
The S&P/TSX composite index closed down 65.38 points to 16,006.67, after hitting a low of 15,928.16 on 252.9 million shares traded.
Gold, industrials, telecom and materials ended the day in positive territory.
Health care led on the downside, falling about 3% on a 5.8% drop by Bausch Health Companies Inc. and lower cannabis stocks. Information technology, consumer discretionary and utilities sectors followed.
In New York, the Dow Jones industrial average followed Wednesday’s record high by posting its worst day since July 11. It lost 200.91 points to 26,627.48. The S&P 500 index was down 23.90 points at 2,901.61 while the Nasdaq composite was down 145.57 points at 7,879.51.
Pashootan said markets have been volatile after aggressive U.S. tax cuts were a catalyst for the strong performance of U.S. equity markets in 2018.
“It’s trading sideways trying to figure out what all that means for 2019 and where is the silver knight going to come from to push markets higher.”
He said markets are more sensitive to bad news, which is healthy coming so late in a cycle that has seen valuations climb.
The Canadian dollar traded at an average of US77.52¢ compared with an average of US77.93¢ on Wednesday on a run up of the U.S. greenbacks.
The November crude contract was down US$2.08 at US$74.33 per barrel and the November natural gas contract was down US6.5¢ at US$3.16 per mmBTU.
The December gold contract was down US$1.30 at US$1,201.60 an ounce and the December copper contract was down US5.65¢ at US$2.78 a pound.