Market Caution Weighs on Canada's Benchmark Index as Rate Decision Nears

Canadian equity markets exercised restraint on Tuesday, with the S&P/TSX Composite Index retreating to 31,049.28, a decline of 52.50 points or 0.17%. The pullback reflects investor hesitation as traders await pivotal rate decisions from both the Bank of Canada and the Federal Reserve, compelling market participants to exercise instruments of risk management rather than pursue aggressive positioning ahead of policy clarity.

Sectoral Divergence Highlights Risk-Off Sentiment

The trading session presented a tale of divergent sector performance. Financials emerged as the session’s strongest performer, gaining 0.70%, while Information Technology added 0.29%. However, these advances were overshadowed by sharp declines across defensive and resource-dependent sectors. Materials fell 1.81%, with Energy dropping 1.59%, Healthcare declining 1.41%, and Consumer Staples sliding 1.29%. The underperformance in Materials was particularly notable, driven by weakness in precious metals and base metals as gold prices retreated during the session.

Individual Stock Movers Paint Mixed Picture

Among notable declines, Curaleaf Holdings Inc led losses with a 4.42% drop, followed by Imperial Oil’s 3.51% decline and SSR Mining Inc falling 3.50%. Triple Flag Precious Metals Corp (down 3.14%) and Kinross Gold Corp (down 3.13%) also reflected broader pressure on the gold sector. On the gainers’ side, Laurentian Bank surged 18.39%, while Shopify Inc climbed 4.90%. Significant contributors to the upside included Energy Fuels Inc (6.97%), Bank of Nova Scotia (2.80%), and National Bank of Canada (1.79%).

Banking Sector Earnings Begin to Roll

Bank of Nova Scotia delivered fourth quarter 2025 results, reporting earnings per share of $1.39 and quarterly revenues of $7.06 billion. Net income for the three months ending October 31 totaled $2.2 billion, with the institution surpassing consensus EPS estimates in three of the past four quarters. The banking sector results set the stage for upcoming earnings from major peers including Royal Bank of Canada, TD Bank, BMO, CIBC, and National Bank—outcomes that will significantly influence financial sector momentum heading into year-end.

Rate Decision Uncertainty Underpins Market Caution

The central bank backdrop remains critical. In late October, the Bank of Canada reduced its overnight target rate by 25 basis points to 2.25%, bringing the bank rate to 2.5% and the deposit rate to 2.20%. However, recent economic data has complicated expectations for another cut in December. While third-quarter GDP expanded 2.6% on an annualized basis—exceeding Bank of Canada forecasts—the second quarter contraction of 1.8% has created mixed signals about growth momentum. The central bank’s rate announcement on December 10 looms as a key event that market participants are carefully monitoring.

Geopolitical and Trade Headwinds Persist

Beyond monetary policy, structural challenges continue to weigh on market sentiment. The proposed review of the Canada-U.S.-Mexico Agreement (CUSMA) next year adds uncertainty, particularly given U.S. tariff actions implemented in August that have strained automotive, steel, aluminum, and soft lumber industries. In response, Prime Minister Mark Carney has initiated defensive economic and security initiatives, including Canada’s recent participation in the European Union’s Security Action for Europe (SAFE) defense fund—a $170 billion rearmament program established following Russia’s actions in Ukraine. Such strategic repositioning reflects Canada’s efforts to diversify economic partnerships amid trade tensions.

Technical and Policy Crosscurrents Shape Near-Term Outlook

Market participants are clearly exercising caution on multiple fronts: awaiting December 10 rate clarity from the Bank of Canada, monitoring whether the Federal Reserve’s incoming leadership signals a shift toward lower rates, and reassessing exposure to sectors exposed to commodity price fluctuations and tariff-driven headwinds. The two-sector gain amid broad-based hesitation underscores the current risk-off environment where investors are being highly selective with their capital deployment.