Canada’s stock market took a significant hit on Monday, suffering its largest intraday drop since August 2024, following a surprise move by U.S. President Donald Trump. Over the weekend, Trump signed an executive order imposing steep tariffs on a range of goods from Canada, sparking a wave of selling in Canadian stocks. Analysts warn that this could signal a sharp correction for the country’s market, with long-term consequences for its economy.
S&P/TSX Composite Index Sees Sharp Drop
The S&P/TSX Composite Index, Canada’s benchmark stock gauge, plunged as much as 3% shortly after the Toronto markets opened on Monday. The steep decline marked the worst intraday loss since August 2024, driven by fears surrounding the U.S. tariffs. The market saw some recovery later in the morning after Mexican President Claudia Sheinbaum announced that tariffs on her country’s goods would be delayed for a month. However, the damage to Canadian stocks was already done.
According to analysts from Jefferies Group LLC, the immediate fallout could see a decline of up to 10% in the S&P/TSX Composite Index as it adjusts to the recent drop in the value of the Canadian dollar. In the longer term, they predict that the 25% tariffs on most Canadian goods and the 10% tariff on energy exports could trigger a decline of up to 20% in the stock index.
The Canadian Dollar Takes a Hit
As the stock market slumped, the Canadian dollar, also known as the loonie, took a dive. It reached its lowest intraday level against the U.S. dollar in nearly 22 years before recovering somewhat. The loonie was down by about 0.5%, trading at 1.4602 USD/CAD at the time of writing. The currency’s sharp drop highlights the negative investor sentiment spurred by the U.S. decision.
Impact on Canada’s Economy and Trade Relations
The new tariffs have placed Canada in an especially vulnerable position, facing significant and prolonged trade restrictions from its largest trading partner. Hugo Ste-Marie, an analyst at Bank of Nova Scotia, called this trade war the “worst possible scenario” for Canada. The country was already struggling with slower economic growth and weak productivity, and now, with such steep tariffs in place, Canada’s future economic prospects have become even more uncertain.
The tariffs could have widespread inflationary effects, driving up costs for Canadian manufacturers, consumers, and exporters. Loop Capital Markets LLC also downgraded the stock prices of exposed Canadian companies, including major rail operators Canadian Pacific Kansas City Ltd. and Canadian National Railway Co., due to the negative economic impact of the tariffs.
The Industrial Sector Hit Hardest
Among the hardest-hit sectors was industrials, as companies in manufacturing and transportation felt the brunt of the tariff impact. Major players in the sector, including BRP Inc., the maker of Skidoo snowmobiles, Bombardier Inc., the private jet manufacturer, and Magna International Inc., a car parts supplier, all saw double-digit losses right out of the gate. BRP shares, for instance, plummeted nearly 14% to C$60.79 by 9:39 a.m. Toronto time.
The immediate reaction of Canadian stocks to the tariffs has painted a grim picture, but some analysts have suggested that the full effects may take time to unfold. Despite the immediate sell-off, there are signs that certain sectors, like precious metals, might offer some protection for investors in the short term.
Precious Metals See Gains
On a brighter note, the materials sector was the only part of the S&P/TSX Composite Index to show any growth. As Trump’s tariff announcement prompted a rush for safe-haven assets, gold prices soared, benefiting Canadian mining stocks. By the morning, gold bullion was trading at around $2860 per ounce, driving up the stock prices of companies that mine precious metals.
The Road Ahead
While it’s still too early to assess the full impact of Trump’s executive order, the potential for an extended period of volatility looms over Canadian markets. The tariff impositions are set to hurt industries that rely on smooth trade relations with the U.S., and the ripple effects could affect the broader economy, particularly in manufacturing and export-driven sectors.
For Canadian businesses, the tariff landscape is anything but clear. With inflation likely to rise as tariffs push up prices on imported goods, the country’s economy may face even more pressure. The future of Canada’s relationship with its largest trading partner also remains uncertain, as Trump’s decision continues to dominate market discussions.
Despite these challenges, some analysts remain cautiously optimistic, suggesting that the near-term impact on Canadian stocks could be limited. Foreign companies, particularly U.S.-based firms, produce many of Canada’s exports, especially in the automotive and pharmaceutical sectors, meaning they would bear the brunt of the tariff burden in the short run.
Canada’s stock market is reeling after the news of U.S. tariffs, and the outlook for the country’s economy has become more uncertain. While certain sectors are suffering immediate declines, such as industrials, others, like precious metals, may offer some respite. The full long-term effects remain to be seen, but analysts predict significant repercussions for the Canadian economy, with a potential 20% decline in the stock index over time. Investors and policymakers alike will be watching closely to see how this trade war unfolds in the weeks and months to come.
