Stock markets have their worst day in months as rate hikes and high inflation rattle investors

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Stock markets around the world fell on Thursday as investors faced the prospect of persistently high inflation and much higher borrowing costs to combat it.

The Toronto Stock Exchange’s main index closed just under 20,700, down nearly 500 points or 2.3%, with all sectors of the benchmark Canadian stock market down on the day.

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

At one point during the pandemic, Shopify was the most valuable company in Canada, worth over $200 billion. Today, that’s worth around a quarter of that spike, as the company that saw demand for its services soar during the pandemic now faces a revenue slowdown.

“The easing of lockdowns is leading to higher consumer spending on in-store retail, services and travel,” said Daniel Chan, a TD Bank analyst who covers the business. “These changing spending habits are a headwind for Shopify.”

Selling was worst in New York, with the Dow Jones Industrial Average down more than 1,000 points or more than 3%, and the tech-heavy Nasdaq, which is doing the worst, down more than 3%. 600 points or 5%. .

Tech stocks hardest hit

Former high-flying tech stocks like Apple, Microsoft, Amazon, Google and Tesla were down 4-7% on the day.

Large-cap tech, 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 softening expectations growth,” said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence.

The gloomy mood came on the heels of the U.S. central bank’s decision to raise its interest rate on Wednesday, its biggest hike in 22 years.

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

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

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

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

John Zechner, chairman of Toronto-based investment firm J Zechner Associates, says the selloff is taking place because investors realize that lending rates are going to have to get much more expensive, and quickly, in order to keep inflation under control. .

“The punch is out,” he said in an interview on Friday. “Free money has effectively supported this bull market for the past 12 years, and we’re probably seeing the most aggressive move away from free money we’ve seen in over 20 years.”

“The only way to get inflation under control is to try to slow growth or tighten the economy a bit,” Zechner said. “And one of the casualties is the stock market.”

The value of bitcoin, which was touted as an inflation hedge, fell along with everything else, losing around 6% or above $3,000 to change hands below US$37,000. That’s half of what the world’s largest cryptocurrency was worth in November, and its lowest level since January.

Other cryptocurrencies joined in the selloff as investors pulled their money out of the volatile sector and put it into assets deemed safer.

Globally, US$120 million was withdrawn from cryptocurrencies in the week to May 5, according to data from digital investment firm Coinshares. In the past month, the total jumped to US$339 million.

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