Stocks in Canada Surge due to Increased Hopefulness Regarding Federal Interest Rate Decreases
Canadian Stock Market Surges Amid Fed Rate Cut Expectations and Optimistic Trade Talks
The Canadian stock market has experienced a significant surge in recent days, with the S&P/TSX Composite Index reaching record highs. This upward trend is largely attributed to the prospect of US Federal Reserve rate cuts and optimistic progress in trade negotiations between the US and Canada.
Investor expectations of a Fed rate reduction have stimulated gains in Canadian stocks. The lower US borrowing costs tend to ease financial conditions in closely linked markets like Canada’s. On Tuesday, the S&P/TSX Composite Index surged, settling at 27,570.08, up by 549.65 points (or 2.03%).
While the US increased tariffs on some Canadian goods to 35%, about 85% of Canada’s exports to the US remain protected under the USMCA trade agreement. High-level US-Canada trade talks are ongoing, with Canadian officials optimistic about reducing tariffs without retaliatory measures. Canada’s federal minister in-charge of US-Canada trade talks stated that he sees a pathway to reduce US tariffs imposed on Canada.
Gains were broad-based across sectors like Consumer Discretionary, Industrials, Financials, and Energy, although some sectors such as Real Estate and Healthcare saw mixed performance amid tariff uncertainties. The Healthcare sector gained 2.73% today, while the Consumer Staples sector was up by 1.44%. The Materials sector led gains, increasing by 5.62%.
Prime market-moving stocks today included Energy Fuels Inc and Denison Mines Corp, Kinross Gold Corp, Eldorado Gold, Shopify Inc, Coveo Solutions Inc, and Bausch Health Companies. The IT sector also saw significant gains, up by 3.02%.
The US Federal Reserve’s expected rate cuts amid the ongoing US-Canada tariff war have boosted Canadian stocks, as easing US rates can stimulate economic activity and investor confidence. However, while market consensus prices in a high probability (~93%) of a Fed rate cut later in 2025, major financial institutions like Morgan Stanley recommend caution, suggesting volatility may continue and advising focus on some large-cap growth stocks.
Traders anticipate two interest rate cuts this year, one in September and another in December. US President Donald Trump has hinted at a change of guard at the US Fed, criticizing the central bank for keeping rates higher when the US economy has shown resilience to the effects of the ongoing trade war. The current Fed Chair has resisted calls for lowering the borrowing rates. The US jobs market showed weakness last week, stoking bets that the US Fed will cut interest rates.
In summary, the prospect of US Fed rate cuts amid the tariff dispute has positively influenced Canadian stock market trends, as easing US rates can stimulate economic activity and investor confidence, while ongoing trade talks keep hopes alive for easing tariff-related disruptions.
[1] Nasdaq, "Canadian Stocks Jump Amid Rising Optimism On Fed Rate Cuts" (2025-08-05) [2] Nasdaq, "Canadian Stocks Surge As Optimism About Fed Rate Cuts Grows" (2025-08-06) [3] Economic Times, "US Stock Market Reaction to Fed Rate Cuts" (2025-08-07)
Investing in the Canadian business sector has been bolstered by the anticipation of US Federal Reserve rate cuts, as these reductions can stimulate economic activity and investor confidence in the stock-market, such as the S&P/TSX Composite Index. The surge in Canadian stocks is fueled not only by Fed rate cut expectations but also by optimistic progress in the US-Canada trade talks, which may result in reducing tariffs. Technology-focused businesses may also benefit from this financial landscape, as evidenced by the strong performance of the IT sector during this period.
