Canada’s main stock index took its biggest tumble in nearly six weeks on Wednesday, while American markets fell even harder under pressure from rising U.S. Treasury yields amid worries about the U.S. government's spiralling debt.
The S&P/TSX composite index fell 216.46 points at 25,839.17, its largest slide since April 10.
In New York, the Dow Jones industrial average dropped 816.80 points to 41,860.44. The S&P 500 index decreased 95.85 points to 5,844.61, while the Nasdaq slipped 270.07 points to 18,872.64.
Stocks had been drifting only modestly lower earlier in the day, after Target and other retailers gave mixed forecasts for their upcoming profits amid uncertainty caused by U.S. President Donald Trump’s trade war. But markets north and south of the border took a sharper downward turn after the U.S. government released the results for its latest auction of 20-year bonds.
The government regularly sells such bonds as a way to borrow money to pay for its bills. In this auction, the U.S. government had to pay a yield that breached five per cent to attract enough buyers to lend it a total of $16 billion over 20 years, boosting yields for U.S. Treasuries but tamping down prices for various other investments.
“Through five per cent it starts to get a little bit sticky for the equity market,” said Mike Archibald, vice-president and portfolio manager at Toronto-based AGF Investments Inc.
“Obviously the market has some level of concern about the budget deficits that are still occurring in the U.S. marketplace right now.” Hence the higher bond yields: “You're going to have to issue more bonds in order to pay for the deficits.”
When the U.S. government has to pay more interest to borrow money, that can cause interest rates to rise for U.S. households and businesses too, including rates on mortgages, auto loans and credit cards. That in turn can slow the economy. Higher yields also often make investors feel less inclined to pay high prices for stocks and other kinds of investments.
Yields have been on the rise in part because of concerns that tax cuts currently under consideration in Washington, D.C., could pile trillions of dollars more onto the government’s debt. Worries are still brewing about how much Trump’s tariffs will push up on inflation in the United States as well as abroad, as large companies seek to dilute the price shock by spreading that pain across continents.
“They’re in the midst of trying to negotiate through the House of Representatives their tax bill, which will include some permanent tax cuts” — and consequent higher deficits — noted Archibald.
Areas that outperformed on the S&P/TSX composite Wednesday included “defensive” indexes such as materials — made up mainly of mining companies — and energy, as well as utilities and consumer staples. All other sectors saw losses.
“That’s really just the gold names that are acting well again for the second day in a row,” Archibald said. “That’s obviously where the market tends to move toward when they’re looking for some defensive exposure.”
Nonetheless, concerns about "peak tariff" are in the rear-view mirror, he said.
"We've had a great move off the lows ... As much as it's frustrating, it is healthy to consolidate some of these gains."
Toronto-Dominion Bank will kick off a week of Canadian bank earnings Thursday, offering a glimpse of the domestic economic outlook and how buyers and borrowers are feeling.
"We'll get a pretty good read on what the state of the Canadian economy, and specifically the state of the Canadian consumer," said Archibald.
The Canadian dollar traded for 72.21 cents US compared with 71.76 cents US on Tuesday.
The July crude oil contract was down 46 cents US at US$61.57 per barrel and the June natural gas contract was down six cents US at US$3.37 per mmBTU.
The June gold contract was up US$28.90 at US$3,313.50 an ounce and the July copper contract was up two cents US at US$4.67 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published May 21, 2025.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD, TSX:TD)
Christopher Reynolds, The Canadian Press
