Canada’s main stock index saw a slight gain on Friday, thanks to the strength in battery metals and financial stocks, while U.S. markets experienced losses, particularly in the tech sector.
On Thursday, U.S. markets had made gains following the successful market debut of semiconductor firm Arm Holdings Inc., which boosted stocks. However, much of those gains were given back on Friday.
The S&P/TSX composite index closed up 54.50 points at 20,622.34, while in New York, the Dow Jones industrial average was down 288.87 points at 34,618.24. The S&P 500 index fell by 54.78 points to 4,450.32, and the Nasdaq composite experienced a loss of 217.72 points, closing at 13,708.33.
Michael Greenberg, senior vice-president and portfolio manager at Franklin Templeton Investment Solutions, noted that the TSX managed to break even while U.S. markets sank due to differences in index composition.
The Canadian markets benefit from their exposure to commodities, which helped boost the index. On the other hand, the U.S. markets rely more heavily on the tech sector. The tech-focused Nasdaq experienced the greatest losses, falling by 1.56%.
“When you have technology shares fairly challenged, that’s obviously going to affect the U.S. a lot more than Canada,” said Greenberg.
Nvidia and Microsoft were two major players on the Nasdaq that weighed down the sector, with their shares falling by 3.69% and 2.50% respectively.
Tech shares are typically more sensitive to higher interest rates and have shown more significant reactions than other areas of the market in recent months, particularly to indications of sticky inflation or the need for sustained higher rates.
Recent economic reports have indicated resilience among consumers and the labor market in the face of higher interest rates.
“The more core parts of the inflation story, whether it be labor, services, is just proving to be a little bit stickier,” said Greenberg. This suggests that interest rates may not need to rise much further but will require additional time to have an effect.
Next week, the U.S. Federal Reserve will make its next interest rate decision. It is expected to hold its key rate for now but may consider hiking rates again later in the year, according to Greenberg.
However, the bigger question is whether the rate cuts that the market is anticipating for next year are overly optimistic, and how rates will look in the long term.
“From a cyclical standpoint, we do expect rates will start to go down next year,” said Greenberg. But he also expects more volatility in the long term.
“Inflation may be a little bit stickier at times, you know, jump around a little bit more, which means interest rate policy might need to be a little bit higher,” he added.
The Canadian dollar traded at 73.93 cents US, slightly lower than the previous day’s rate of 73.99 cents US.
In the commodities market, the November crude contract rose by 41 cents to $90.02 per barrel, while the October natural gas contract fell by six cents to $2.64 per mmBTU.
The December gold contract increased by $13.40 to $1,946.20 an ounce, while the December copper contract dropped by two cents to $3.80 a pound.
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