Stocks End Mixed After Bank of Canada's Surprise Rate Hike

exterior of Bank of Canada building in Calgaray, Alberta

(Image credit: Getty Images)

Stocks started Wednesday higher but retreated as the session wore on as a surprise rate hike from the Bank of Canada lifted expectations the Federal Reserve will hike interest rates at its upcoming meeting.

Not helping matters was a spike in Treasury yields, which had an outsized effect on tech stocks.

"The Bank of Canada is a leading central bank," says Edward Moya, senior market strategist at currency data provider OANDA, adding that they were the first among their global peers to raise interest rates in 2022 and the first to pause earlier this year.

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Canada's central bank restarting its tightening cycle and signaling more rate hikes could come down the pike in order to tamp down stubbornly high inflation has many rethinking what the Fed will do, Moya says.

At last check, futures traders were pricing in a 31% chance for a quarter-point rate hike at the next Fed meeting, up from 22% yesterday and 26% one week ago. But even if the Fed pauses at its upcoming gathering, the probability for a 0.25% rate increase at the July meeting is over 50%, according to CME Group.

Treasury yields spike

Increasing expectations for higher interest rates lifted Treasury yields on both 2-year (+2.5 basis points to 4.55%) and 10-year (+9.3 basis points to 3.793%) notes. This, in turn, dragged on technology (-1.5%) and communication services stocks (-1.1%).

Not surprisingly, the tech-heavy Nasdaq Composite was the worst performer of the major indexes, shedding 1.3% to 13,104.

The S&P 500 (-0.4% at 4,267) also finished in the red, while the Dow Jones Industrial Average gained 0.3% to 33,665 on strength in industrial stock Caterpillar (CAT, +3.9%) and big bank Goldman Sachs Group (GS, +2.7%).

Nvidia a top stock pick of billionaire investors

Each quarter, we take a look at regulatory filings to see what the smart money is doing. We've uncovered the stocks Warren Buffett is buying and selling in the Berkshire Hathaway equity portfolio, as well as the best blue chip stocks that hedge funds bought in the first quarter.

Most recently, we took a deep dive to see what were some of the top stock picks of billionaire investors at the start of the year. Spoiler alert: they are some of the biggest and best tech stocks on Wall Street.

One particular standout was Nvidia (NVDA), which is a favorite of Philippe Laffont's Coatue Management. The hedge fund has owned NVDA since 2016 and upped its stake in the semiconductor stock by 7% in Q1, which followed a 37% increase in Q4. It's easy to see why the smart money is clamoring for a piece of Nvidia's pie. Not only has it more than doubled in value for the year-to-date, but it's been one of the best stocks of the past 30 years.

With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.