Canada’s main stock index endured its worst day of 2019 Friday on signs of a global economic slowdown and potential for a recession.
Weak manufacturing data from Europe and then in the United States had investors nervous on both sides of the Atlantic.
Concerns heightened after the yield curve, or spread between the U.S. three-month and 10-year notes, inverted for the first time since 2007.
That’s a much-watched signal that’s often viewed as a predictor of a recession, said Ian Scott, an equity analyst at Manulife Asset Management.
“It’s not that the Fed is calling for a recession this year, but there are investors who are starting to wonder if it could happen at some point this year, even accidentally,” he said in an interview.
U.S. manufacturing PMI data that slid to a 21-month low in March, coupled with weakness in Europe, are reminders that central banks are pausing interest rate hikes for a reason, Scott said.
“I think what this says is certainly a slowdown and potentially a recession.”
The S&P/TSX composite index closed down almost one per cent, losing 155.26 points to 16,089.33 after hitting an intraday low of 16,043.86. That follows Thursday’s gain of 77 points.
Energy, technology sectors down
Defensive sectors such as utilities, real estate and telecommunications led the market while health care, energy, technology and financials were down.
The risk-off sentiment was expressed in companies like recreational products maker BRP Inc., which saw its shares fall 7.5 per cent despite strong fourth-quarter results that beat analyst expectations.
“It’s powersports products are viewed as rather discretionary purchases that could fall off materially in a slowdown,” added Scott.
In New York, markets fell by as much as 2.5 per cent. The Dow Jones industrial average was down 460.19 points at 25,502.32. The S&P 500 index was down 54.17 points at 2,800.71, while the Nasdaq composite was down 196.29 points at 7,642.67.
The Canadian dollar traded at an average of 74.57 cents US, compared with an average of 74.82 cents US on Thursday.
The May crude contract was down 94 cents at US$59.04 per barrel and the May natural gas contract was down six cents at $2.77 US per mmBTU on concerns about slowing demand.
The April gold contract was up $5 at $1,312.30 an ounce and the May copper contract was down 6.35 cents at $2.84 a pound.
With most corporate earnings results completed for the quarter, markets are at the mercy of headlines related to the ongoing trade dispute between the U.S. and China, Brexit negotiations and any economic data, said Scott.
Stable data could prompt a market recovery, but that’s no longer his base case.