TORONTO – North American markets racked up sharp losses Tuesday amid growing concern that the U.S. Federal Reserve could move sooner than thought on hiking interest rates.
The S&P/TSX composite index tumbled 212.73 points to 14,641.76 — leaving the Toronto index about where it started the year — amid a drop in resource stocks as a stronger U.S. dollar pressured commodities.
New York’s Dow Jones industrials plunged 332.78 points to 17,662.94, while the Nasdaq fell 82.64 points to 4,859.80. The S&P 500 index dropped 35.27 points to 2,044.16.
The Canadian dollar lost 0.53 of a U.S. cent to 78.86 cents.
The U.S. dollar hit multi-year highs against a variety of currencies amid the latest round of Fed nervousness which started Friday with the release of a better than expected U.S. jobs report for February.
Ultra-low interest rates and other monetary stimulus have benefited stock markets for several years as investors sought higher returns. But a return to more normal levels for interest rates in the world’s biggest economy might spell an end to the bull market for stocks, which has been ongoing for six years.
The concern about an early hike in U.S. interest rates picked up Monday night after Dallas Federal Reserve Bank president Richard Fisher said policy-makers should move sooner and slower rather than later and faster.
Markets could get more clarity on Fed intentions when the central bank holds its next interest rate meeting next week. The Fed has kept rates near zero since the 2008 financial collapse.
“It’s all about the messaging,” said Brian Belski, chief investment strategist at BMO Capital Markets.
“The (Fed) has declared they’re going to be data dependent and I think what’s happening is they’re worried about the potential of the reaction of the stock market. The prevailing trend in the last 15 years has been lower rates, quantitative easing, a lower U.S dollar — it’s a pretty big sea change.”
Meanwhile, the stronger U.S. dollar helped push the April crude contract in New York down $1.71 to US$48.29 a barrel and the energy sector backed off 1.35 per cent. A stronger greenback makes U.S. dollar denominated commodities more expensive for holders of other currencies.
Oil prices were also squeezed by an upwards revision to U.S. crude oil production and signs that the Organization of Petroleum Exporting Countries will maintain production at current levels.
The U.S. Energy Information Agency said on Tuesday it expects total oil production in 2015 to be 9.35 million barrels per day, slightly higher than the 9.3 million figure in last month’s short-term energy outlook.
The base metals component fell 3.4 per cent as May copper fell five cents to US$2.62 a pound.
Financials were also a major weight, down 1.7 per cent.
The gold sector faded 1.3 per cent while April gold was $6.40 lower to US$1,160.10 an ounce.