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Market Watch: January 21, 2022

Jan 21, 2022 | 4:53 PM

Big Picture

Markets Wobble as Investors Ponder Rising Rates; Nasdaq Enters Correction Territory

It’s been a rough week for North American indexes as investors try to assess just how aggressive central banks will be in the fight against inflation. With U.S. markets closed Monday for the Martin Luther King Jr. holiday, trading was fairly light on the TSX, which climbed 180 points. The index’s energy sector led the way, rising 1.7 per cent as oil prices climbed.

U.S. stock indexes fell Tuesday and bond yields hit two-year highs as investors worried that the Fed would raise interest rates more aggressively than expected. Meanwhile, 10-year Treasury yields hit their highest level in two years—up to 1.866 per cent. Quarterly earnings were also a drag on markets Tuesday as several financial companies, including Goldman Sachs, reported weaker-than-expected results. By Tuesday’s close, the Dow tumbled 543 points, while the Nasdaq dropped 387. In Canada, the TSX lost 263 points, erasing Monday’s gain.

The downward pressure on equities continued Wednesday as U.S. stocks surrendered early session gains and turned lower. The tech-heavy Nasdaq fell 1.1 per cent for the day, officially entering correction territory – having fallen 10.7 per cent from its all-time closing high back in November. Oil prices rose, with Brent crude futures hitting $88.44, the highest mark since 2014. The TSX was also in the red, down 69 points, although a rally in the materials sector helped limit the day’s losses.

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In economic news, Canada’s annual inflation rate in December hit a 30-year high at 4.8 per cent, raising expectations the Bank of Canada could raise rates as soon as next week.

Meanwhile, U.S. stocks tumbled late Thursday, as investors remain focused on the prospects of tighter monetary policy from the Fed. By Thursday’s close, the Dow dropped 313 points, the S&P 500 lost 50 points, and the Nasdaq fell 186. In Canada, the TSX declined 147 points. Finally, weekly jobless claims in the U.S. jumped to 286,000 from 231,000, as the Omicron variant continues to disrupt American businesses.

U.S. Markets Record Sharp Losses; TSX Off Nearly 300

For the four trading days covered in this report, the Dow lost 1,196 points to close at 34,715, the S&P 500 dropped 180 points to settle at 4,483, while the tech-heavy Nasdaq sunk 740 points to close at 14,154. In Canada, the TSX lost 299 points to end at 21,058.

Strategy

Retail sales were up 0.7 per cent in November

It fell short of consensus at 1.2 per cent and down from October’s downwardly revised 1.5 per cent reading. The monthly increase was led by higher sales at gasoline stations (4.9 per cent), building material and garden equipment and supplies dealers (3.0 per cent), and food and beverage stores (1.0 per cent). However, severe flooding in British Columbia and parts of Atlantic Canada damaged infrastructure and disrupted business operations, impacting retail sales. Sales increased in 6 of 11 subsectors, representing 63.8 per cent of retail trade.

Core retail sales, which exclude gasoline stations and motor vehicle and parts dealers, increased 0.5 per cent, mainly driven by the increase in building material and garden equipment and supplies dealers. Higher sales were also recorded at food and beverage stores, led by receipts at supermarkets and other grocery stores (1.6 per cent) and to a lesser extent, beer, wine, and liquor stores (0.4 per cent). Sporting goods, hobby, book and music stores (-10.0 per cent) posted the largest decline in retail sales, followed by a strong growth in October when higher sales of sporting and leisure products were recorded. Additionally, on a seasonally adjusted basis, retail e-commerce sales fell 3.5 per cent, coinciding with limited Cyber Monday sales at retailers amid supply chain constraints in November 2021.

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