TORONTO — North American stock markets moved lower as the technology sector was hurt by comments from the dovish Federal Reserve's vice chair nominee that interest rates have to increase soon to fight inflation.
At her Senate confirmation hearing Thursday, Lael Brainard said she's open to rate hikes in March because inflation is too high.
The U.S. consumer price index rose to a near four-decade high in December at seven per cent.
While there's little difference between comments from Brainard and Fed chairman Jerome Powell, his testimony this week was viewed positively while hers was seen as surprising, said Kevin Headland, co-chief investment strategist at Manulife Investment Management.
"When you get her on the side of rate hikes are going to happen, it seems to be the reaction," he said in an interview.
Headland said rate hikes from such a low base aren't negative but merely a recognition that we no longer need ultra-accommodative policy used to fight the COVID crisis.
"I think the market is paying too much attention, perhaps, to some of the headline news and some of the talks out there and less on the actual fundamentals that we're in a solid economy despite the near-term Omicron variant reactions."
Still, the prospect of higher interest rates is particularly negative for technology stocks that have thrived amid low rates and are among the biggest companies in the U.S.
"If I look at the TSX, what is driving that down is really Shopify and I think it's just being dragged down with its peers in the U.S.," Headland said.
The S&P/TSX composite index closed down 102.04 points to 21,292.96.
In New York, the Dow Jones industrial average was down 176.70 points at 36,113.62. The S&P 500 index was down 67.32 points at 4,659.03, while the Nasdaq composite was down 381.58 points or 2.5 per cent to a three-month low of 14,806.81.
Shopify lost 8.8 per cent to drive the Canadian technology sector down 2.7 per cent.
Materials and energy decreased on lower metal, crude oil and natural gas prices.
The February gold contract was down US$5.90 at US$1,821.40 an ounce and the March copper contract was down 3.1 cents at nearly US$4.55 a pound.
The February crude oil contract was down 52 cents at US$82.12 per barrel and the February natural gas contract was down 58.7 cents at US$4.27 per mmBTU.
That sent shares of Birchcliff Energy Ltd. down 6.8 per cent and Crescent Point Energy Corp. 5.0 per cent lower. Iamgold Corp. fell 6.4 per cent.
Headland said the decreases reflect a little pause after an unsustainable growth in prices, especially crude, rather than anything negative about commodities.
The prospect that Omicron is peaking in the U.S. and other parts of the world suggests demand will pick up in the spring as economies reopen, he said.
"We shouldn't be looking necessarily at one or two days of volatility to judge the outlook on commodities.".
Clothing retailer Aritzia Inc. rose nearly 19 per cent to lead the TSX after reporting stellar quarterly results.
The Vancouver-based company is an example of how the market will respond this quarter to solid earnings.
"The market is going to reward those companies that meet or exceed expectations and also have solid guidance," Headland said, noting he expects the fourth quarter will be strong, albeit not as good as recent quarters.
Banks are among those that are expected to shine. The heavyweight financials sector increased Thursday as banks performed well in anticipation of higher interest rates and improved net interest margins.
The Canadian dollar traded for 80.10 cents US compared with 79.94 cents US on Wednesday.
Headland said the loonie is getting a tailwind from anticipation that the Bank of Canada will raise rates more often this year than the Federal Reserve.
This report by The Canadian Press was first published Jan. 13, 2022.
Companies in this story: (TSX:SHOP, TSX:BIR, TSX:CPG, TSX:ATZ, TSX:IMG, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press