North American markets closed the day in the red, with Shopify Inc down double digits. weighing on Canada’s main stock market technology sector and U.S. stocks sank ahead of a scheduled interest rate decision on Wednesday from the U.S. Federal Reserve. The S&P/TSX composite closed up 131.80 points at 18,972.68, led by weakness in the tech sector after Shopify said 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 percent in late morning trading, but recovered some of those losses to close at $40.69 a share. “E-commerce is not performing as well as it did during the pandemic lockdown, when people were forced to buy online,” Pierre Cleroux, vice-president of research and chief economist for the Business Development Bank of Canada, said in an interview. “We all thought this would continue, but it slowed down. I was surprised by that.” In New York, the Dow Jones Industrial Average fell 228.50 points to 31,761.54. The S&P 500 fell 45.79 points to 3,921.05, while the Nasdaq Composite dropped 220.10 points to 11,562.57. Cleroux says North American markets were also reacting to the International Monetary Fund’s “gloomy” economic outlook. The IMF now sees the global economy growing 3.2 percent in 2022, down 0.4 percentage points from April, before slowing to 2.9 percent of GDP next year, a downgrade of 0.7 percentage points. Walmart’s earnings warning on Monday after the market closed also worried investors. The retail giant cut its second-quarter and full-year earnings outlook, citing soaring inflation affecting consumer shopping habits. “Walmart is a leader. When Walmart struggles to meet its profit target, it means other companies are going to struggle as well,” Cleroux said. The Federal Reserve is also expected to raise interest rates by 0.75 percentage points on Wednesday, which Cleroux says is already baked into markets. It’s a big week for tech earnings, and Cleroux says those results will have a bigger impact on markets than the Fed. “It will be a sign of whether the economy is really slowing down or not,” he said. Google parent Alphabet reported earnings that missed Wall Street estimates after the closing bell on Tuesday. Overall, however, Cleroux is somewhat positive about the U.S. earnings season. “Earnings will be better than what the US expects,” he said. “I think (the companies) will hit 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 that US$100 a barrel mark. “It will probably stay between US$95 and US$100 per barrel this week,” Cleroux said. The market expects oil demand to slow as the global economy slows, he explains, adding that he “doesn’t think the price will go back to $100 this summer.” The September natural gas contract rose 25 cents to US$8.83. August gold was down $1.40 at $1,717.70 an ounce and September copper was up 3 cents at $3.38 a pound. The Canadian dollar traded at 77.62 US cents, down from 77.81 US cents on Monday. This report by The Canadian Press was first published on July 26, 2022.
