Investment update
Weekly insight into the marketplace.
February 3 to 7, 2025
U.S. tariffs were a catalyst for market volatility
It was a roller coaster week for financial markets after U.S. President Donald Trump announced sweeping tariffs on Canada, Mexico and China would be moving ahead. Canada’s TSX declined more than 800 points at its lowest on Monday but bounced back for a more moderate loss by the closing bell. The Wall Street benchmarks also pared losses on Monday after investors north and south of the border digested news that the tariffs on Canada and Mexico would be postponed for 30 days. All four of the major North American benchmark stock indexes closed higher on Tuesday and Wednesday, recouping most of Monday’s losses. Markets were mixed on Thursday, as the tariff threat level slowly subsided and investors refocused on corporate earnings and economic data. Canadian investors saw the first trade surplus in 10 months in December with exports expanding faster than imports, led by a push by U.S. businesses to build up inventory ahead of the looming tariffs on Canada. The week ended on a down note, though, with all four benchmarks declining on Friday, and closing with a weekly loss.
How would the tariffs affect Canada?
Many Canadian industries rely on exports to the U.S., especially in manufacturing, energy and agriculture. The proposed tariffs would make it more expensive to sell goods to the U.S., potentially leading to lower sales and job losses. For consumers, the tariffs would likely increase the prices of everyday products. Many American-made goods imported to Canada — such as electronics, cars and food — could see price hikes due to potential Canadian retaliatory tariffs. The automotive sector would be one of the hardest hit industries because cars and parts cross the U.S.-Canada border multiple times during production. A 25% tariff would increase the cost of making cars, which means prices will rise for consumers in both countries. Canadian auto plants may see reduced demand, leading to potential job losses.
The U.S. also buys a large portion of Canada’s oil, gas and electricity. Even though energy products would face a lower 10% tariff, Canadian oil will become more expensive for U.S. buyers, making it less competitive. This could result in lower profits for Canadian energy companies and potentially reduced investments in the sector. Canadian farmers export significant amounts of food — such as beef, pork and grains — to the U.S. These products would become more expensive in the U.S., possibly reducing demand. Farmers may face lower incomes, and some could struggle to stay in business. Consumers would also pay more for American food products that Canada imports, such as fruits and processed foods.
The broader economic impacts
The tariffs would increase costs for businesses, which would likely pass the costs on to consumers. Everything from groceries and gas to electronics and cars could become more expensive, accelerating inflation. There’s also a worry that the tariffs could lead to a potential drop in the value of the Canadian dollar. A weaker loonie would make imported goods more expensive, further driving up costs. Industries like auto manufacturing, oil and gas, and agriculture will face the biggest challenges. If companies lose U.S. customers, they may cut jobs or reduce wages to stay profitable. Businesses rely on predictable trade policies to plan investments and hiring. With tariffs creating uncertainty, companies may pause expansion plans or move operations elsewhere to avoid high costs. Higher costs for Canadian exporters will make their products less competitive in the U.S. Reduced demand and could lead to job losses and slower economic growth.
The stock and bond market*
| Index | Close | Week | YTD |
|---|---|---|---|
| S&P/TSX Composite | 25,442.91 | -0.35% | 2.89% |
| Dow Jones Industrial Average | 44,303.40 | -0.54% | 4.13% |
| S&P 500 Index | 6,025.99 | -0.24% | 2.45% |
| NASDAQ Composite | 19,523.40 | -0.53% | 1.10% |
| 10-year Canadian Bond Yield | 2.95% | -0.12% | -0.28% |
| 10-year U.S. Treasury Yield | 4.49% | -0.09% | -0.09% |
| WTI Crude Oil (US$/barrel) | $71.00 | -2.11% | -1.00% |
| Canadian Dollar | US$0.6997 | 1.74% | 0.65% |
| Bank of Canada Prime Rate 5.20% | |||
*Weekly performance ending February 7, 2025. Source: Bloomberg.
U.S. inflation data (February 12): The annual U.S. inflation rate increased for a third consecutive month in December to 2.9% (from 2.7% in November). With the current market sensitivity, and after the U.S. Federal Reserve held rates steady at the last FOMC meeting, expect this week’s inflation data to get a lot of attention.
Circle these dates
February 17: Canadian and U.S. stock markets closed March 3: Deadline for contributing to an RRSP for the 2024 tax year March 12: Bank of Canada interest-rate announcementMarch 18 to 19: U.S. Federal Reserve meetings and statement
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