Dow drops 1,000 pts, TSX down 300 as markets post sharp losses after Friday trading

By The Canadian Press and The Associated Press

North American stock markets were down sharply Friday as investors reacted negatively to a speech by U.S. Federal Reserve chair Jerome Powell who dashed Wall Street’s hopes that it may soon ease up on high interest rates in its effort to tame inflation.

The S&P 500 lost 3.4 per cent, its biggest drop since mid-June, after Powell said the Fed will likely need to keep interest rates high enough to slow the economy “for some time” in order to beat back the high inflation sweeping the country.

The Dow dropped 3 per cent and the Nasdaq composite ended 3.9 per cent lower, reflecting a broad sell-off led by technology stocks. Higher rates help corral inflation, but they also hurt asset prices.

Investors initially struggled to make out the meaning of Powell’s highly anticipated speech. Stocks fell at first, then erased nearly all their losses, and then turned decisively lower with all but five of the companies in the S&P 500 ending up in the red.

“He focused more on the Fed’s goals rather than the path,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. “That left the market with less to grab onto in terms of the future path for policy.”

Powell’s speech followed up on several other Fed officials, who have recently pushed back on speculation the Fed may ease up on its interest-rate hikes. The increases help corral inflation, but they also hurt the economy and investment prices.

Powell acknowledged the increases will hurt U.S. households and businesses, in perhaps an unspoken nod to the potential for a recession. But he also said the pain would be far greater if inflation were allowed to fester and that “we must keep at it until the job is done.”

He was speaking at an annual economic symposium in Jackson Hole, Wyoming, which has been the setting for market-moving Fed speeches in the past.

“He basically said there will be pain and that they won’t stop and can’t stop hiking until inflation moves a lot lower,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “It was a mercifully short speech and to the point. Powell didn’t really break new ground, which is good since Jackson Hole isn’t a policy meeting.”

The sell-off capped a week of choppy trading that left major indexes down 4 per cent or more for the week.

All told, the S&P 500 fell 141.46 points to 4,057.66. The benchmark index is now down almost 15 per cent for the year.

The Dow lost 1,008.38 points to close at 32,283.40. The last time the blue-chip average had a 1,000-point drop was in May.

The Nasdaq slid 497.56 points to 12,141.71, its biggest drop since June.

The S&P/TSX composite index in Toronto was down 299.05 points at 19,873.29.

Hardest-hit were growth stocks such as technology, which are more sensitive to interest rates. The S&P/TSX capped technology index was down 4.39 per cent, and the health care index – home to riskier cannabis stocks – was down 5.05 per cent by end of day.

But there wasn’t a single sector on the TSX that didn’t end Friday in the red, and south of the border, all but six of the companies in the benchmark S&P 500 ended in negative territory.

The Canadian dollar traded for 76.99 cents US compared with 77.30 cents US on Thursday.

The October crude contract was up 54 cents at US$93.06 per barrel and the October natural gas contract was down seven-and-a-half cents at US$9.27 per mmBTU.

The December gold contract was down US$21.60 at US$1,749.80 an ounce and the September copper contract was down less than a penny at US$3.70 a pound.

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