Canadian Equities Rally on Growing Momentum for December Fed Rate Cut

Canadian equity markets demonstrated robust momentum on Monday, building on Friday’s positive performance as market participants increasingly bet on a U.S. Federal Reserve rate cut in December. The S&P/TSX Composite Index closed at 30,604.35, reflecting a gain of 443.70 points or 1.47%, with strength evident throughout the trading session starting from the opening bell.

Fed Officials Signal Dovish Stance, Bolstering Rate Cut Outlook

The rally drew considerable vigor from recent commentary by U.S. Federal Reserve policymakers. John Williams, President and CEO of the Federal Reserve Bank of New York, signaled on Friday that the central bank should reduce rates given persistent weakness in the labor market, emphasizing there remains “room for further adjustment.” This was reinforced by Christopher Waller, a Federal Reserve Governor, who expressed support for a December rate reduction during an interview with Fox Business, citing concerns about employment trends.

These remarks have crystallized market expectations around another rate cut before year-end. According to the CME Group FedWatch Tool, markets are currently pricing in a 79.1% probability of a Fed rate cut in December. This follows the central bank’s October 29 rate reduction and reflects ongoing disagreement among Fed officials about the appropriate policy path ahead.

Labor Market Data Provides Mixed Signals Amid Economic Uncertainty

Recent employment figures have shown signs of cooling in the U.S. labor market, though private data providers have offered somewhat conflicting assessments. This economic backdrop has become central to the rate cut discussion, as policymakers weigh monetary policy adjustments. Key data releases on employment, retail sales, and producer prices are expected this week and will likely influence both market sentiment and the Federal Reserve’s December decision.

Canadian Sector Performance Reflects Broader Market Optimism

Seven of the 11 sectors on the S&P/TSX posted gains, with Information Technology leading the advance at 5.54%. Materials (5.06%), Healthcare (1.10%), Utilities (0.30%), and Consumer Discretionary (0.26%) also showed strength. Notable gainers included Bitfarms Ltd (15.50%), Celestica Inc (14.95%), Shopify Inc (5.21%), Fortuna Mines (10.44%), Aris Gold Corporation (10.36%), and Orla Mining Ltd (9.07%).

On the downside, Communication Services (0.16%), Industrials (0.20%), Real Estate (0.73%), and Consumer Staples (1.61%) saw weakness. Individual stock decliners included Maple Leaf Foods (2.23%), Empire Company Ltd (2.05%), Metro Inc (1.85%), Firstservice Corp (2.02%), and Crombie Real Estate (1.49%).

Canadian Trade Tensions Persist Amid Manufacturing Headwinds

Meanwhile, Canada’s economic outlook remains challenged by escalating trade frictions with the United States. Statistics Canada reported that manufacturing sales are projected to decline 1.1% in October following a 3.3% increase in September, with particular weakness anticipated in the chemical and wood product segments. This pullback reflects the broader economic strain from U.S. tariffs on Canadian exports, with steel, aluminum, automobile, and lumber sectors experiencing the most significant impact.

Prime Minister Mark Carney has been engaged in diplomatic efforts to address these trade concerns. At the G20 summit in Johannesburg, South Africa, Carney met with Indian Prime Minister Narendra Modi to explore expanded bilateral trade opportunities. Following their discussions, Modi extended an invitation for Carney to visit India in early 2026, which Carney accepted. These international engagements underscore Canada’s efforts to diversify trade relationships as it navigates the current U.S. trade environment. Carney indicated that Canada would return to tariff negotiations with the U.S. when circumstances permit.