TSX's gains set to slow as trade war hits Canada's economy
The S&P/TSX Composite index (.GSPTSE), opens new tab has rebounded nearly 16% from its lowest closing level in April to post a record closing high on Monday at 26,073.13.
Since the start of the year, the index has gained 5.4%, outperforming major U.S. indexes such as the S&P 500. It has been helped by a heavy weighting in metal mining shares as safe-haven demand lifted the price of gold to record highs.
"We still believe that peak uncertainty is behind us but the Canadian economy is starting to show the impact from tariffs," said Angelo Kourkafas, a senior global investment strategist at Edward Jones.
Canada sends about 75% of its exports to the United States, including steel, aluminum and autos which have been hit by hefty U.S. duties, while Canada's unemployment rate was at 6.9% in April, its highest level since November.
The median prediction of 21 equity strategists and portfolio managers in the May 15-27 poll was for the S&P/TSX Composite index to edge 0.7% higher to 26,250 by year-end, slightly less than the 26,500 mark expected in a February poll.
"As companies continue to grapple with the implications of tariffs and recalibrate their inventory strategies, alongside the inclination to delay capital expenditures, profit margins will likely face pressure," said Victor Kuntzevitsky, a portfolio manager at Stonehaven, Wellington-Altus Private Counsel.
Seven out of 13 analysts who answered a separate question said corporate earnings would be lower in 2025 compared with 2024 while eight out of 13 said a correction was likely or highly likely over the coming three months.
A correction, or a drop of 10% or more from the peak, was confirmed in April before the market rebounded.
"We are focusing more on dividend payers as it will protect one's portfolio better during a market correction," said Ben Jang, a portfolio manager at Nicola Wealth. "Over time, falling interest rates are expected to drive outflows from money market instruments."
The Bank of Canada has cut its benchmark interest rate by 2-1/4 percentage points since last June, to 2.75%, to support the economy.
Lower borrowing costs and the potential for trade deals could eventually see the market take another leg higher, analysts say. The index was expected to reach 27,750 by the end of next year, a gain of 6.4%.
"Once there is more clarity on trade and lower interest rates start filtering through the economy in 2026, we see a reacceleration in earnings," Kourkafas, from Edward Jones, said.
(Other stories from the Reuters Q2 global stock markets poll package)
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