Canada's main stock index retreated slightly on Thursday after hitting a 20-month high the day before, while a pair of reports held back growth in U.S. markets as well as north of the border.

The S&P/TSX Composite Index fell 86.53 points, 0.41 per cent, to close at 20,929.38.

“Oil is down a lot today,” noted Jules Boudreau, a senior economist at Mackenzie Investments. 

The 1.4 per cent drop in the energy index also hurt oil-linked currencies, including Canada’s. The loonie traded for 75.69 cents U.S. compared with 75.73 cents U.S. on Wednesday.

Recently, the TSX has hit highs not seen since April 2022, "but it's still one of the worst-performing markets in December,” Boudreau said, attributing Canada's relatively poor performance to the falling price of oil and the sturdy Canadian dollar. 

“If you have a higher Canadian dollar, that will tend to be negative for the TSX.” 

Meanwhile, the three main U.S. indexes largely stayed put, weighed down by fresh figures indicating higher-than-expected unemployment as well as underwhelming home sales.

In New York, the Dow Jones Industrial Average gained 53.58 points to 37,710.10. The S&P 500 Index nudged up by 1.77 points to 4,783.35, while the Nasdaq Composite slipped 4.04 points to 15,095.14.

The number of Americans filing initial claims for unemployment benefits jumped by 12,000 to 218,000 in the week ended Dec. 23, the U.S. Labor Department reported on Thursday. Pending home sales south of the border remained at a two-decade low in November following a sharp decline the month before, according to the National Association of Realtors. 

“I think that's driven a lot of what we saw in terms of low-growth price action,” Boudreau said. 

“In the U.S., the best sectors are utilities, consumer staples, communication. And then all of the cyclical stuff — energy, real estate — are down.” 

The weak numbers also had a ripple effect in Canada, he said. 

“The markets outside of the U.S., including the TSX, which are more economically sensitive will tend to reflect the more bearish outlook.” 

A “very poor” auction of seven-year Treasury Department notes on Thursday also came as a surprise, particularly in the light of the jobless and real estate numbers. 

“Typically when you have a negative growth surprise like we saw because of initial jobless claims and home sales, you would tend to see treasuries and bonds in general rally. That's not what we saw today,” Boudreau said. 

“That could be an indication that markets are starting to regurgitate some of the new bonds issued by the Treasury.” 

Across the Pacific, Chinese stocks made up some of the best performing markets globally after China’s central bank pledged to jump-start the economy. Wrapping up its quarterly monetary policy committee meeting Wednesday, the People’s Bank of China vowed to stimulate consumer prices following a steep three-month slide.

"That's going to be the big theme for me of 2024," Boudreau said. "Can the Chinese government and, relatedly, the Chinese central bank manage to really stimulate the Chinese economy — especially the Chinese consumer — to get China out of deflation and back to growth?"

In Canada, a key question hanging over the coming year is interest rate cuts. 

“If we look at the economic numbers coming out of Canada versus the U.S., they've been much weaker over the past month. Inflation has been a little bit more sticky here in Canada, but that'll converge to the U.S. numbers, especially when we're seeing that the Canadian economy is slowing down faster,” Boudreau said. 

He predicted as many as a half-dozen cuts from the Bank of Canada in 2024. 

Until January, however, market watchers and analysts may endure more “boring” days, stressing that the end of December typically sees “among the lowest-liquidity" trading days of the year. 

On Thursday, the February crude oil contract was down US$2.34 at US$71.77 per barrel and the February natural gas contract was up 12 cents at US$2.56 per mm/BTU.

The February gold contract was down US$9.60 at US$2,083.50 an ounce and the March copper contract was down almost four cents at US$3.92 a pound.

This report by The Canadian Press was first published Dec. 28, 2023.