Tech Stocks Drag Canada and US Markets in Risk-Off Shift

TORONTO — Stock markets in the U.S. and Canada experienced declines on Thursday, reflecting a widespread shift away from riskier assets.

“It's certainly a risk-off day in the markets, that’s for sure, both in Canada and in the U.S.,” said Anish Chopra, a managing director with Portfolio Management Corp.

He noted that in the U.S., the technology sector, especially software companies, was leading the downturn. This trend followed a Wednesday evening earnings report from Cisco Systems, which raised concerns about the tangible benefits of AI. Investors were questioning how AI would affect businesses beyond the tech industry and whether major tech firms would see returns on their significant investments in AI infrastructure.

Cisco Systems saw a drop of 12.3 per cent on Thursday, despite exceeding analysts’ expectations for profit and revenue in the previous quarter. The company indicated that it might generate less profit per US$1 of revenue during the current quarter compared to the previous one. Analysts suggested this could signal rising prices for computer memory, driven by the surge in AI demand.

The U.S. stock market punished companies perceived as potential losers due to artificial-intelligence technology.

“When you look at AI, there are definitely going to be winners and losers,” Chopra explained.

“Companies that can reduce their cost structure while maintaining revenue lines will likely be winners. However, others may find that AI negatively impacts their revenue and they struggle to cut costs effectively, which significantly affects their profitability.”

U.S. investors are set to receive a report on Friday regarding inflation at the consumer level. Economists anticipate that inflation slowed to 2.5 per cent last month, down from 2.7 per cent in December.

“When considering inflation, one key indicator is the strength of the U.S. labor market. If investors fear that rate cuts may not occur as expected, it could create concern,” Chopra said.

A robust job market could prompt the U.S. Federal Reserve to maintain interest rates and delay any rate cuts, even if U.S. President Donald Trump continues to advocate for lower rates. While lower rates can stimulate the economy, they may also exacerbate inflation.

In New York, the Dow Jones industrial average fell by 669.42 points, reaching 49,451.98. The S&P 500 index dropped 108.71 points to 6,832.76, while the Nasdaq composite declined by 469.32 points to 22,597.15.

The S&P/TSX composite index in Canada fell by 788.91 points, reaching 32,465.28, with losses in the basic materials and technology sectors.

Chopra attributed the weakness in the Canadian tech sector to spillover effects from the U.S. market.

“However, on the commodity front, there are concerns about a slowing global economy and reduced demand, which is reflected in the commodity sector’s performance,” he said.

“Certain areas, such as precious metals, have performed well recently, but there has been significant volatility in this sector.”

Gold and silver reached record highs in recent weeks due to increased demand for safe-haven investments, though prices have since decreased.

The April gold contract fell by US$150.10 to US$4,948.40 an ounce. The March crude oil contract dropped by US$1.79 to US$62.84 per barrel.

The Canadian dollar traded at 73.50 cents US, compared to 73.67 cents US on Wednesday.