Stock markets had their worst day in months as rate hikes, high inflation

Stock markets around the world fell on Thursday as investors faced up to the prospect of persistent high inflation, and much higher borrowing costs to fight it.

The Toronto Stock Exchange main index closed just shy of 20,700, down by almost 500 points or 2.3 per cent with every sector on the benchmark Canadian stock market lower on the day.

Shares in Ottawa-based e-commerce giant Shopify led the way down, losing 14 per cent of their value on the day. The company, which reports in U.S. dollars, announced before markets opened that it lost $1.5 billion US in the first quarter. That’s a reversal from a profit of $1.3 billion US in the same period a year ago.

At one point in the pandemic, Shopify was the most valuable company in Canada, worth more than $200 billion. Today it’s worth about a quarter of that peak, as the company that saw demand for its services explode during the pandemic is now dealing with slowing revenues.

“Easing lockdowns are driving higher consumer spending on in-store retail, services and travelling,” said Daniel Chan, an analyst with TD Bank who covers the company. “These shifting spending patterns are a headwind for Shopify.”

The sell-off was worse in New York, with the Dow Jones Industrial Average off by more than 1,000 points or more than three per cent, and the technology-heavy Nasdaq faring worst of all, down by more than 600 points or five per cent.

Tech stocks hit hardest

Former high-flying tech stocks like Apple, Microsoft, Amazon, Google and Tesla were down by between four and seven per cent on the day.

“Large-cap technology, media and telecom stocks are deflating from their pandemic-bubble peak, but the group still has more air to lose amid rising interest rates and cooling growth expectations,” said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence.

The gloomy mood came on the heels of the decision by the U.S. central bank to raise its interest rate on Wednesday, its biggest single move upwards in 22 years.

That will increase the cost of borrowing, which is bad news for companies and the stock investors looking to buy them. The Bank of England also raised its lending rate on Thursday and warned of “stagflation” to come, which is when an economy is dealing with high inflation, but also slow growth.

Brenda O’Connor-Juanas, a senior vice-president with UBS based in Miami, told CBC News on Thursday that investors are reacting to a deluge of worrisome news, from supply chain issues to the ongoing pandemic and uncertainty in Ukraine.

“The markets right now in general are just responding and reacting to every negative headline,” she said.

“There is just so much uncertainty about inflation and about rates … we’re just going to see the markets move around a lot like this,” she said. “Volatility is here to stay.”

John Zechner, chair of Toronto-based investment firm J Zechner Associates, says the sell-off is happening because investors are realizing that lending rates are…

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