stats
globeinteractive.com: Making the Business of Life Easier

   Finance globeinvestor   Careers globecareers.workopolis Subscribe to The Globe
The Globe and Mail /globeandmail.com
Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space


Search

space
  This site         Tips

  
space
  The Web Google
space
   space



space

  Where to Find It


Breaking News
  Home Page

  Report on Business

  Sports

  Technology

space
Subscribe to The Globe

Shop at our Globe Store


Print Edition
  Front Page

  Report on Business

  National

  International

  Sports

  Arts & Entertainment

  Editorials

  Columnists

   Headline Index

 Other Sections
  Appointments

  Births & Deaths

  Books

  Classifieds

  Comment

  Education

  Environment

  Facts & Arguments

  Focus

  Health

  Obituaries

  Real Estate

  Review

  Science

  Style

  Technology

  Travel

  Wheels

 Leisure
  Cartoon

  Crosswords

  Food & Dining

  Golf

  Horoscopes

  Movies

  Online Personals

  TV Listings/News

 Specials & Series
  All Reports...

space

Services
   Where to Find It
 A quick guide to what's available on the site

 Newspaper
  Advertise

  Corrections

  Customer Service

  Help & Contact Us

  Reprints

  Subscriptions

 Web Site
  Advertise

  E-Mail Newsletters

  Free Headlines

  Globe Store New

  Help & Contact Us

  Make Us Home

  Mobile New

  Press Room

  Privacy Policy

  Terms & Conditions


GiveLife.ca

    

PRINT EDITION
Stock markets tumble on rising rates, fears of disappointing earnings
space
space
By DAVID BERMAN
  
  

Email this article Print this article
Thursday, October 11, 2018 – Page B1

The dramatic downturn in stocks on Wednesday, the worst day on Wall Street in eight months, suggested that the new North American trade agreement and the parade of upbeat U.S. economic reports have taken a back seat to what investors fear is coming next: Rising borrowing costs and squeezed profit margins.

Global stocks plummeted just days after U.S. indexes celebrated fresh record highs amid simmering concerns about rising bond yields, increased trade tensions between China and the United States and speculation that corporate financial results will soon disappoint. U.S.

technology stocks and Canadian energy names were among equities hardest hit.

The S&P 500 fell 94.66 points, or 3.3 per cent, to 2,785.68, touching a three-month low. The Dow Jones Industrial Average fell 831.83 points or 3.2 per cent, to 25,598.74.

The turbulence occurred well beyond U.S. markets though. British stocks fell 1.3 per cent and German stocks fell 2.2 per cent.

In Canada, the S&P/TSX Composite Index fell 336.65 points or 2.1 per cent, to 15,517.40.

The latest dip continued a losing streak for Canadian stocks that began last week soon after political leaders tentatively agreed to the United States-Mexico-Canada Agreement (USMCA), removing a key concern over North American trade.

The market mayhem also follows a winning streak for U.S. economic readings, including Friday's 50-year low for the unemployment rate and the best-ever monthly gauge of service-sector activity. As well, analysts expect companies in the S&P 500 will report third-quarter profit growth of more than 20 per cent, year-over-year.

But this sunny backdrop could bring tighter monetary policy from the U.S. Federal Reserve, which has already raised its key interest rate three times this year in an effort to cool the economy and reduce inflationary pressures. Higher rates are raising questions about the impact of steeper borrowing costs and how long the nineyear economic expansion can continue.

The bond market is sending troubling signals that are rippling through the automotive and housing markets. The yield on the 10-year U.S. Treasury bond, which spiked to seven-year highs last week, continued to move higher this week, peaking at 3.25 per cent.

"We thought we would get a pause here at 3, 3.1 per cent on the 10-year bond and we kind of blew through that," Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, told Reuters.

Bond yields, which move in the opposite direction to prices, retreated from their highs later in the day as investors began to rush to the relative safety of fixed income assets.

But the fact that bonds are driving stock-market sentiment is raising comparisons to the stock market downturn earlier this year, when the S&P 500 fell 10 per cent between January and April.

Canadian lumber stocks, which are exposed to U.S. home-building activity, were down sharply. West Fraser Timber Co. Ltd.

fell 3.7 per cent, to a one-year low. The stock has fallen 32 per cent since June.

Canadian Pacific Railway Ltd. fell 6.6 per cent, wiping out last week's rally that had coincided with an upbeat financial forecast. Canadian National Railway Co.

fell 5.5 per cent.

In the United States, technology stocks were among the biggest drags on major U.S. indexes. Among the so-called FAANG stocks, Facebook Inc. fell 4.1 per cent, Amazon.com Inc. fell 6.2 per cent, Apple Inc.

fell 4.6 per cent, Netflix Inc. fell 8.4 per cent and Google parent Alphabet Inc. fell 5.1 per cent.

"The big concern isn't really what thirdquarter earnings numbers are, but really what the outlook for the fourth quarter and first quarters are," Oliver Pursche, chief market strategist at Bruderman Asset Management in New York, told Reuters.

West Texas intermediate (WTI) crude oil, a U.S. benchmark, fell $2.14 to US$72.82 a barrel. And the price of Western Canadian select oil relative to WTI widened to a discount of US$47 a barrel - its cheapest level in at least 10 years - weighing on Canadian energy stocks. Suncor Energy Inc. fell 3.2 per cent and Encana Corp. fell 6.3 per cent.

Stéfane Marion, chief economist and strategist at National Bank Financial, believes that part of the problem with today's stock market is that global companies have been lowering their profit expectations for the next 12 months.

This trend began with emerging markets, where companies are struggling with rising U.S. interest rates and local currency depreciation - but it is now spreading to U.S. companies because of challenges to their profits margins.

"We continue to see margin expansion as difficult to achieve in this mature phase of the economic cycle under conditions of rising interest rates, higher oil prices, a strong U.S. dollar, deceleration in emerging markets and very tight labour market conditions that will raise production costs," Mr. Marion said in a note.

"Whether global equities rebound in the coming weeks will depend on the outlook for corporate profits and the extent of the rise in long-term interest rates," he added.

Investors also may need to see indications of a thaw in the relationship between the United States and China. On Wednesday, though, tensions appeared to be rising.

Media reports suggested that the White House will would look more closely at Chinese investments in U.S. companies in an attempt to protect U.S. technology on national security grounds. And U.S. Treasury Secretary Steven Mnuchin told the Financial Times that trade talks between the United States and China must include a discussion on currency devaluations by China, in light of the tumbling yuan this year.

"As we look at trade issues, there is no question that we want to make sure China is not doing competitive devaluations," Mr. Mnuchin told the Times.

Associated Graphic

On Wall Street, technology stocks were among the biggest drags on the major indexes. BRENDAN McDERMID/REUTERS

Traders work the New York Stock Exchange floor on Wednesday. Analysts forecast companies in the S&P 500 will report third-quarter profit growth of more than 20 per cent year-over-year. BRYAN R. SMITH/AFP/GETTY IMAGES


Huh? How did I get here?
Return to Main Margaret_Wente Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

space  Advertisement
space

Need CPR for your RSP? Check your portfolio’s pulse and lower yours by improving the overall health of your investments. Click here.

Advertisement

7-Day Site Search
    

Breaking News



Today's Weather


Inside

Rick Salutin
Merrily marching
off to war
Roy MacGregor
Duct tape might hold
when panic strikes


Editorial
Where Manley is going with his first budget




space

Columnists



For a columnist's most recent stories, click on their name below.

 National


Roy MacGregor arrow
This Country
space
Jeffrey Simpson arrow
The Nation
space
Margaret Wente arrow
Counterpoint
space
Hugh Winsor  arrow
The Power Game
space
 Business


Rob Carrick arrow
Personal Finance
space
Drew Fagan arrow
The Big Picture
space
Mathew Ingram arrow
space
Brent Jang arrow
Business West
space
Brian Milner arrow
Taking Stock
space
Eric Reguly arrow
To The Point
space
Andrew Willis arrow
Streetwise
space
 Sports


Stephen Brunt arrow
The Game
space
Eric Duhatschek arrow
space
Allan Maki arrow
space
William Houston arrow
Truth & Rumours
space
Lorne Rubenstein arrow
Golf
space
 The Arts


John Doyle arrow
Television
space
John MacLachlan Gray arrow
Gray's Anatomy
space
David Macfarlane arrow
Cheap Seats
space
Johanna Schneller arrow
Moviegoer
space
 Comment


Murray Campbell arrow
Ontario Politics
space
Lysiane Gagnon arrow
Inside Quebec
space
Marcus Gee arrow
The World
space
William Johnson arrow
Pit Bill
space
Paul Knox arrow
Worldbeat
space
Heather Mallick arrow
As If
space
Leah McLaren arrow
Generation Why
space
Rex Murphy arrow
Japes of Wrath
space
Rick Salutin arrow
On The Other Hand
space
Paul Sullivan arrow
The West
space
William Thorsell arrow
space





Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space

© 2003 Bell Globemedia Interactive Inc. All Rights Reserved.
Help & Contact Us | Back to the top of this page