TORONTO — Canada’s main stock index dropped moderately while U.S. stocks fell sharply after the head of the Federal Reserve said that he’s feeling more optimistic about the economy.
Fed Chairman Jerome Powell made his first highly anticipated public comments before Congress Tuesday and he reaffirmed that the U.S. central bank plans to raise interest rates gradually.
The Fed increased rates three times last year and has previously signalled that another three increases may be coming in 2018. The market was spooked last month when potential signs of inflation strengthened, which raised speculation that the Fed may speed up its timetable and knocked stock prices down by 10 per cent around the world.
“I think what we’re seeing the market react to is that Powell has clearly signalled the possibility of a potential fourth rate hike — so that’s sending U.S. markets lower and it’s strengthened the U.S. dollar, which is hurting gold stocks,” said Colum McKinley, vice-president and portfolio manager of Canadian equities at CIBC Asset Management Inc.
“If you look at the worst performing stocks in Canada today they’re all gold stocks.”
The Toronto Stock Exchange’s S&P/TSX composite index was down 43.51 points to 15,671.15, led by losses in the materials, metals and bullion sectors.
In New York, the Dow Jones industrial average was down 299.24 points to 25,410.03. The S&P 500 index was down 35.32 points to 2,744.28 and the Nasdaq composite index was down 91.11 points to 7,330.35.
Treasury yields also began jumping Tuesday following Powell’s comments, as the yield on the U.S. 10-year Treasury note climbed to 2.90 per cent from 2.86 per cent late Monday. It had been down earlier in the morning.
Higher yields generally hurt stock prices by making bonds more appealing to investors.
In currency markets, the Canadian dollar closed at an average trading value of 78.49 cents US, down 0.34 of a U.S. cent.
On the commodities front, the April crude contract was down 90 cents to US$63.01 per barrel and the April natural gas contract was unchanged at US$2.68 per mmBTU.
The April gold contract was down US$14.20 to US$1,318.60 an ounce and the May copper contract was down four cents to US$3.19 a pound.
— With files from The Associated Press