Shopify drop weighs on S&P/TSX composite on bearish day for North American markets


North American markets ended the trading day in the red, with a double-digit drop in Shopify Inc. weighing on the tech sector of Canada’s main stock exchange and U.S. stock markets tumbled ahead of Wednesday’s scheduled decision on the interest rate by the US Federal Reserve.

The S&P/TSX Composite Index closed down 131.80 points at 18,972.68, on weakness in the tech sector after Shopify announced it would lay off 10% of its workforce because it misjudged the growth of the e-commerce sector.

The company’s stock price fell more than 15% by late morning but recouped some of those losses to close at $40.69 per share.

“E-commerce isn’t performing as well as it did during the pandemic shutdowns when people were forced to buy online,” said Pierre Cleroux, vice president of research and chief economist at Banque de France. development of Canada, in an interview. “We all thought it would continue, but it slowed down. I was surprised by that.”

In New York, the Dow Jones Industrial Average was down 228.50 points at 31,761.54. The S&P 500 index fell 45.79 points to 3,921.05, while the tech-heavy Nasdaq composite fell 220.10 points to 11,562.57.

Cleroux says North American markets were also reacting to the “gloomy” economic outlook from the International Monetary Fund (IMF).

The IMF now sees the global economy growing 3.2% in 2022, down 0.4 percentage points from April, before slowing to a GDP rate of 2.9% next year, or a drop of 0.7 percentage points.

Walmart’s profit warning on Monday after markets closed also sent chills to investors. The retail giant slashed its second-quarter and full-year profit outlook, citing soaring inflation that is impacting consumer shopping habits.

“Walmart is a leader. When Walmart struggles to meet its profit target, it means other businesses will struggle as well,” Cleroux said.

The US Federal Reserve is also expected to raise interest rates by 0.75 percentage points on Wednesday, which Cleroux said is already priced into the markets.

It’s a big week for tech earnings and Cleroux says these results will impact markets more than the Fed.

β€œIt will be a sign if the economy is really slowing down or not,” he said.

Alphabet, Google’s parent company, reported revenue that missed Wall Street estimates after the closing bell on Tuesday.

Overall, however, Cleroux is somewhat positive about the US earnings season.

“Earnings will be better than what the United States expects,” he said. β€œI think (companies) will meet their targets or be slightly down.”

As for Canada, he says, “we should be doing pretty well because a lot of our big companies are in the energy sector. And in the second quarter, energy prices were still very high.”

The September crude contract fell US$1.72 to US$94.98 a barrel, after approaching the US$100 a barrel mark.

“It’s probably going to stay between US$95 and US$100 a barrel this week,” Cleroux said.

The market expects demand for oil to slow as the global economy slows, he said, adding that he “doesn’t believe the price will go back to $100 this summer.”

The September natural gas contract rose 25 cents to US$8.83.

The August gold contract was down US$1.40 at US$1,717.70 an ounce and the September copper contract was up three cents at US$3.38 an pound.

The Canadian dollar was trading at 77.62 cents US against 77.81 cents US on Monday.

This report from The Canadian Press was first published on July 26, 2022.

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