Global stock markets end week in a slump over fears of U.S. recession - Action News
Home WebMail Thursday, November 14, 2024, 03:01 AM | Calgary | 6.3°C | Regions Advertise Login | Our platform is in maintenance mode. Some URLs may not be available. |
Business

Global stock markets end week in a slump over fears of U.S. recession

Stocks tumbled Friday on worries the U.S. economy could be cracking under the weight of high interest rates meant to whip inflation.

Canada's S&P/TSX composite index saw steepest daily drop since mid-February

A building facade bears the words New York Stock Exchange in gold lettering.
A report showing hiring by U.S. employers slowed last month by much more than economists expected sent fear through markets on Friday, with both stocks and bond yields dropping sharply. It followed a batch of weaker-than-expected reports on the economy from a day earlier. (Mike Segar/Reuters)

Stocks tumbled Friday on worries the U.S. economy could be cracking under the weight of high interest rates meant to whip inflation.

The S&P 500 fell 1.8 per cent on Friday for its first back-to-back loss of at least oneper centsince April. The Dow Jones industrial average lost 1.5 per cent, and the Nasdaq composite fell 2.4 per cent.

Canada's main stock index, the S&P/TSX composite, fell 2.1per cent on Friday as majorenergy, technology and industrial stocks all tumbled, marking itssteepest drop since mid-February.

A report showing hiring by U.S. employers slowed last month by much more than economists expected sent fear through markets, with both stocks and bond yields dropping sharply.

It followed a batch of weaker-than-expected reports on the economy from a day earlier, including worsening U.S. manufacturing activity, which has been one of the areas hurt most by high interest rates.

Rate cut expected soon

It was just a couple of days ago that U.S. stock indexes jumped to their best day in months after Federal Reserve chair Jerome Powell gave the clearest indication yet that inflation has slowed enough for rate cuts to begin in September.

Now, worries are rising that the Fed may have kept its main interest rate at a two-decade high for too long. A rate cut would make it easier for U.S. households and companies to borrow money and boost the economy, but it could take months to a year for the full effects to filter through.

WATCH | How does Canada compare?

Why it feels like we're in a recession (when we're not) | About That

2 months ago
Duration 9:59
Canada's economy is showing many hallmarks of a recession rising unemployment and bankruptcies, less consumer spending yet it's still growing. Andrew Chang explains the disconnect and what may be behind it all.

"The Fed is seizing defeat from the jaws of victory," said Brian Jacobsen, chief economist at Annex Wealth Management. "Economic momentum has slowed so much that a rate cut in September will be too little and too late."

Jacobsen said the U.S. central bank will have to "do something bigger" than the traditional cut of a quarter of a percentage point in order to avert a recession.

Traders are now betting on a nearly three-in-four chance that the Fed will cut its main interest rate by half a percentage point in September, according to data from CME Group. That's even though Powell said Wednesday that such a deep reduction is "not something we're thinking about right now."

Recession far from a certainty

Of course, the U.S. economy is still growing, and a recession is far from a certainty. The Fed has been clear about the tightrope it's walking since it started hiking rates sharply in March 2022: Being too aggressive would choke the economy, but going too soft would give inflation more oxygen and hurt everyone.

While refusing to claim victory on either the jobs or the inflation fronton Wednesday, before the discouraging economic reports hit, Powell said Fed officials "have a lot of room to respond if we were to see weakness" in the job market after hiking its main rate so high.

"Yes, the economy is weakening, but I am not convinced there is enough evidence that the data so far is a death knell for the economy,"said NathanThooft, senior portfolio manager at Manulife Investment Management.

U.S. stocks had already appeared to be headed for losses on Friday before the disappointing jobs report thudded onto Wall Street.

Several big technology companies turned in underwhelming profit reports. Amazon, for example, fell 9.2 per cent after reporting weaker revenue than expected for the latest quarter.

Intel dropped even more 26.7 per centand on pace for its worst day in 50 years after the chip company's profit for the latest quarter fell well short of forecasts. It also suspended its dividend payment and said it expects to lose money in the third quarter, when analysts were forecastinga profit.

With files from CBC News