Profit-Taking Drives S&P/TSX Composite to Pull Back Amid Trade Tensions and Fed Uncertainty

Canadian equities retreated on Monday as market participants booked gains following Friday’s record highs, while uncertainty surrounding U.S. monetary policy decisions and escalating trade tensions kept investors cautious. The S&P/TSX Composite Index declined 281 points, settling at 31,101.78, representing a 0.90% drop from the previous week’s close of 31,382.78.

Monetary Policy Speculation and Market Caution

Market expectations have intensified following reports that Kevin Hassett, a known advocate for interest rate cuts, may be appointed as the next U.S. Federal Reserve Chair under President Donald Trump. Though Hassett would not assume the position until mid-2026, speculation of a potential rate cut at the Fed’s December 9-10 meeting has already influenced investor sentiment. With multiple bank earnings announcements scheduled throughout the week, market participants opted for a cautious approach, locking in profits from recent gains rather than taking substantial new positions.

Trade Policy Creates Economic Headwinds

Canadian Prime Minister Mark Carney warned at an industry gathering in Calgary that U.S. tariffs could extract approximately $50 billion from Canada’s economy—equivalent to roughly $1,300 per capita. In response to these trade challenges, Carney has actively pursued diversification strategies, including a recent agreement with Alberta Premier Danielle Smith to develop a new oil pipeline connecting Alberta to Canada’s Pacific coast, aimed at increasing Asian market access. This initiative drew criticism from environmental groups who viewed it as a reversal of Canada’s climate commitments.

The trade environment remains fraught following Trump’s halt to negotiations with Canada in October over a controversial advertisement mocking his tariff policies. While certain Canadian exports face 35% tariffs, products protected under the Canada-United States-Mexico Agreement (CUSMA) have remained shielded. As Washington prepares public hearings this week regarding CUSMA’s renewal next July, numerous American industries are reportedly urging the administration to preserve the existing framework.

Sectoral Performance and Economic Signals

Healthcare led gainers with a 2.75% advance, followed by Consumer Staples (0.22%), Energy (0.17%), and Materials (0.06%). Notable individual performers included Bausch Health Companies Inc (11.26%), Curaleaf Holdings Inc (4.63%), and Nutrien Ltd (3.63%). Conversely, IT stocks posted the steepest declines at 4.14%, with Shopify Inc (6.32%) among prominent losers, alongside Dye & Durham Ltd (8.00%) and Celestica Inc (7.27%).

Manufacturing activity continued contracting, with the S&P Global Canada Purchasing Managers’ Index falling to 48.4 in November from 49.6 in October, marking the tenth consecutive month of sector weakness. Employment showed modest deterioration as companies held back on replacing departing staff.

Economic Recovery and Rate Cut Outlook

Despite manufacturing headwinds, Statistics Canada data revealed that the broader economy avoided recession in Q3, with GDP rebounding 2.6% year-over-year following a 1.8% decline in Q2. This rebound has reinforced economist consensus that the Bank of Canada—which reduced rates by 25 basis points to 2.25% in late October—would likely hold steady at its December meeting, with Governor Tiff Macklem previously offering no commitments regarding additional cuts.