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The TSX fell today due to a steep drop from Shopify and a likely mid-week rate hike from the U.S. Fed.

Shopify laid off approximately 10 per cent of its workforce after overestimating the rise of e-commerce prompted by elevated pandemic sales. The news led to an over 15-per-cent drop, bringing the company’s year-to-date losses to 73 per cent.

Shopify’s struggles point to the ongoing trend of investors shifting away from growth stocks due to rising interest rates and away from consumer discretionary products due to inflation.

The TSX’s tech sector shed over 5 per cent in early trading. The energy sector suffered a more modest 1-per-cent drop on global supply uncertainty, primarily from Russia reducing Nord Stream natural gas flows into Europe this week. Materials limited the index’s losses maintaining a 0.58-per-cent gain.

Analyst consensus sees the U.S. Federal Reserve, which is meeting today and tomorrow, having little choice but to raise borrowing costs in the face of June’s 9.1-per-cent inflation figure, the highest since 1981. Today’s warning from Walmart, the world’s largest retailer, about lower expected profits is indicative of how consumer spending responds to inflationary pressures, raising the possibility that other major retailers such as Amazon will follow suit.

The behaviour of oil futures is another indicator of the effects of high prices and tight supply, with WTI volumes crossing above their 200-day average on only 6 of the last 78 trading days. Natural gas shortages due to workforce and pandemic-related supply disruptions, and Russia weaponizing its supply, are also forcing nations worldwide to outbid each other in order to stockpile the commodity before winter sets in. If Chinese COVID restrictions loosen and its demand for fuel picks up, the situation will likely devolve into further decreases in industrial output.

Like the U.S. central bank, the Bank of Canada is maneuvering through an environment of prohibitive price increases fueled by elevated employment in the hopes of taming growth without tipping it over into recession.

Canadian housing is currently experiencing a correction due to rising mortgage rates, with RBC forecasting a 42-per-cent drop in home sales from 2021 to 2023, as well as a 12-per-cent drop from peak home prices by early next year. The once booming sector may soon put a dent in the country’s affordability crisis; according to Ratehub, consumers require an income of at least C$220,000 to purchase a home in Toronto or Vancouver with a 20-per-cent down payment.

Manufacturing sales also fell by 2 per cent in May to C$71.6B, following seven consecutive monthly increases, led by motor vehicles, primary metal and secondary manufacturing industries.

While these reversals are encouraging from a macro perspective, other sectors will soon have to follow to reduce June’s 8.1-per-cent inflation reading down to a reasonable cost of living for everyday Canadians. Investors should pay close attention to consumer spending, which is rising steadily for the time being, in addition to trends in metals and fuel prices, as well as government tax cuts and expenditures, to assess any shifts in the business cycle and their implications for the current market pessimism.

The TSX closed down by 0.69 per cent for the session and has been nursing 10.65-per-cent losses since January, approximately half of what the U.S., Developed International, and Emerging Markets have lost in the same time frame. This relationship will change once inflation normalizes and the TSX’s predominant allocation to tangible assets reverts to historical average prices.

Canadian bond yields have been in a downtrend since mid-June, with bond prices serving as a hedge against recent equity volatility. The yield curve is currently inverted, offering investors a chance to reassess portfolio risk in the event of a recession.

Market movers

As the week gets up and running, our investor community has honed in on potential investments in health care and commodities with long-term prospects:

Revive Therapeutics has provided an update on its phase 3 clinical trial for Bucillamine, an oral drug with anti-inflammatory and antiviral properties in patients with mild to moderate COVID-19.

Gold Lion Resources acquired a lithium-ion battery recycling technologies company.

Finally, Atlas Salt has signed a definitive agreement with Triple Point Resources related to the spin-out of the Fischell’s Brook Salt Dome Property and 226 sq. km of related mineral licenses.

The capital raises leading off this week include Emergent Metals, Simply Better Brands, Snowline Gold, Westhaven Gold and Danavation Technologies.

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