TORONTO — Canada's main stock index dipped in the aftermath of its strongest week in nearly a year as North American markets eagerly await the release this week of U.S. inflation numbers for January.
The S&P/TSX composite index closed down 36.35 points to 21,235.50 for a 169-swing Monday between intraday high and low.
In New York, the Dow Jones industrial average was up 1.39 points at 35,091.13 after losing ground near closing. The S&P 500 index was down 16.66 points at 4,483.87, while the Nasdaq composite was down 82.34 points at 14,015.67.
Angelo Kourkafas, investment strategist at Edward Jones, said the consumer price index will set the tone for the markets ahead.
January's inflation rate is expected to have surpassed seven per cent to reach its highest level since the early 1980s.
"Really there's a lot of focus on that because high inflation is forcing the central banks to act to tame it," he said in an interview.
Some observers say the U.S. Federal Reserve could raise rates in March by 50 basis points (a basis point is a hundredth of a percent). But Kourkafas doubts the central bank will go that far, noting that several Fed officials have recently discounted such a move.
He's calling for a quarter-point increase, saying he doesn't think the Fed will want to surprise markets more than it has, given how sensitive they have been around the speed and magnitude of hikes.
"If you do get a big upside surprise (to inflation) you could see for the 12 months ahead more interest rate hikes priced into the market. Not necessarily a 50 basis point hike in March, but more (hikes) within 2022."
While no relief from inflation is expected Thursday, Kourkafas anticipates a decline in cost pressures in the second half of the year as supply chain bottlenecks start to clear.
"It's really a tug of war between the market volatility triggered by valuation pressures on these high growth, growthier parts of the market. And then on the other hand, you still have very solid fundamentals," he said.
The January U.S. jobs report was very strong while the Canadian report was "a temporary hiccup."
Kourkafas doesn't think the removal of central bank stimulus will bring a premature end to the economic expansion.
"The economy is strong enough to be able to digest the upcoming interest rate hikes, at least for this year."
Still, concerns about rising interest rates has weighed on valuations, particularly in the technology sector, which was hit again on Monday.
It was the second weakest sector on the TSX, losing 1.1 per cent with shares of Quarterhill Inc. falling 4.6 per cent and Shopify Inc. nearly two per cent lower.
Industrials and energy were among the seven sectors that lost ground to start the week.
Energy fell as crude oil prices dropped from its seven-year high above US$90 per barrel that was aided by geopolitical tensions between Ukraine and Russia.
The March crude contract was down 99 cents at US$89.77 per barrel and the March natural gas contract was down 34 cents at US$4.23 per mmBTU.
Shares of Advantage Oil & Gas Ltd. lost 4.8 per cent while Vermilion Energy Inc. was down 3.2 per cent.
Despite Monday's decrease, investors need to keep in mind the sizable move in oil prices this year, Kourkafas said.
"It's been a very strong trend, upward trend in prices, so probably a little bit of a breather is not surprising."
The Canadian dollar traded for 78.81 cents US compared with 78.38 cents US on Friday.
Materials led the market, gaining 1.3 per cent on a rise in gold prices.
The April gold contract was up US$14 at US$1,821.80 an ounce and the March copper contract was down 2.5 cents at US$4.46 a pound.
This report by The Canadian Press was first published Feb. 7, 2022.
Companies in this story: (TSX:AAV, TSX:VET, TSX:SHOP, TSX:QTRH, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press
