TORONTO — Canada's main stock index sustained its weakest performance in more than two weeks as strong economic data stoked fears of higher inflation.
"It turns out that good news on the economic front has translated into some bad news for the stock market today," said Candice Bangsund, portfolio manager for Fiera Capital.
U.S. retail sales, factory output and producer pricing all came in above forecasts while Canada's inflation report in January was a little higher than expected.
Retail sales soared a seasonally adjusted 5.3 per cent in January from the month before. It was the biggest increase since June and much larger than the one per cent rise Wall Street analysts had expected. The jump was largely driven by the US$600 stimulus cheques that went out to most Americans in late December and early January.
Canada's headline inflation barometer rose one per cent in January compared with the same month last year, accelerating from the end of 2020 and poised to go higher in the coming months.
The January reading compared with a year-over-year increase of 0.7 per cent in December, and just outpaced expectations from economists who on average expected a 0.9 per cent rise for January, according to financial data firm Refinitiv.
Bangsund said the data has left investors to navigate whether U.S. data will fuel inflationary pressures and if higher bond yields could potentially derail the global equity market upswing.
"It's giving some investors reason to pause, maybe do some profit-taking, but likely a temporary aberration given that the outlook is looking so robust," she said in an interview.
"The ultimate trajectory for the stock market should be higher, but again, we've had an extremely strong run here since the beginning of February specifically, hitting record highs across the board."
The S&P/TSX composite index was down 117.94 points from Tuesday's record close to reach 18,374.78. Despite the dip, the index is up six per cent this month.
In New York, the Dow Jones industrial average was up 90.27 points at 31,613.02. The S&P 500 index was down 1.26 points at 3,931.33, while the Nasdaq composite was down 82.00 points at 13,965.50.
Eight of the 11 major sectors on the TSX were down, led by materials, health care and technology.
Materials lost 2.2 per cent as gold prices sank to a two-month low given the jump in U.S. Treasury yields that dampen the demand for non-interest bearing assets such as bullion.
The April gold contract was down US$26.20 at US$1,772.80 an ounce and the March copper contract was down 1.35 cents at US$3.82 a pound.
Health care moved 2.3 per cent lower to reverse recent gain as shares of cannabis producers Aurora Cannabis Inc, Cronos Group Inc. and Aphria Inc. were 7.1 per cent, 5.4 per cent and 5.3 per cent lower, respectively.
BlackBerry Ltd. shares fell 7.2 per cent to move technology lower. Shares of Shopify Inc. dropped 2.8 per cent after the country's most valuable company warned of challenges ahead if lockdowns are lifted.
That could make it harder for the Ottawa-based company to attract new merchants if consumers are able to head back to brick-and-mortar stores, it told analysts.
Energy moved up as crude oil prices rose further above US$60 a barrel as cold weather caused power outages in the U.S. and curtailed production.
The April crude oil contract was up US$1.08 at US$61.16 per barrel and the March natural gas contract was up nine cents at US$3.22 per mmBTU.
The Canadian dollar traded for 78.67 cents US compared with 78.84 cents US on Tuesday.
Bangsund said the strong economic data could prompt some to question whether the US$1.9-trillion U.S. federal stimulus package is required because of the potential for it to bolster inflationary pressures.
"Given that interest rates are rising because of stronger growth prospects instead of central bank tightening leads me to believe that any type of volatility weakness will be transitory in nature," she said.
"It's a good thing when the economy is growing and economic data is coming in stronger than expected. These are obviously positive developments that should bode well for global equity prices in the coming year."
This report by The Canadian Press was first published Feb. 17, 2021.
— With files from The Associated Press.
Companies in this story: (TSX:BB, TSX:SHOP, TSX:ACB, TSX:CRON, TSX:APHA, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press