Canadian Stock Market Advances as Tariff Concerns Recede, Despite Middle East Tensions

The Canadian stock market demonstrated resilience on Friday, with the S&P/TSX Composite Index climbing 142.28 points to settle at 33,144.98, representing a 0.43% gain. This latest advance extended a positive momentum from the previous two trading sessions, even as investors maintained a cautious approach to market positioning. The backdrop for this rally proved complex, with easing international trade tensions offset by escalating geopolitical risks in the Middle East.

The primary catalyst behind Friday’s market movement centered on receding concerns about new tariff impositions on European Union imports. U.S. President Donald Trump’s recent comments assuring markets that Washington would not pursue aggressive acquisition of Greenland provided relief to investors who had braced for further trade escalation. Subsequently, Trump announced progress toward a “framework” agreement with NATO Secretary General Mark Rutte, further reducing immediate trade uncertainty.

Materials and Energy Lead Rally as Geopolitical Tensions Rise

However, this reduction in trade friction was counterbalanced by heightened military posturing in the Middle East. Trump hardened his stance toward Iran, confirming that U.S. military buildups are underway in the region and describing forces moving toward Iranian territorial waters as an “armada.” He noted that while he hoped such deployment would prove unnecessary, the message was unmistakable regarding American resolve.

These geopolitical developments triggered immediate commodity market responses. Gold and crude oil prices surged higher, benefiting Canadian materials and energy companies. Of the 11 market sectors, seven posted gains on the day. The materials sector led performance with a 1.65% advance, followed by information technology (1.39%), energy (1.15%), communication services (0.39%), real estate (0.34%), utilities (0.34%), and consumer staples (0.15%).

Individual stock performance reflected this commodity-driven rally. Mining and precious metals companies showed particular strength: Capstone Mining Corp surged 8.78%, Aya Gold and Silver Inc gained 6.42%, and Discovery Silver Corp climbed 6.40%. Energy stocks also benefited, with Paramount Resources Ltd advancing 3.71% and Birchcliff Energy Ltd rising 2.53%. Technology sector representative Celestica Inc added 3.81%.

Retail Sales Data Reveals Economic Headwinds

Canadian economic indicators painted a more sobering picture. Statistics Canada reported that retail sales declined 0.5% month-over-month in December 2025, marking the sharpest monthly contraction in three months. This followed a robust November rebound of 1.3%, and year-over-year growth of 3.10% for December compared to the previous year. Manufacturing sales, however, showed modest improvement with preliminary estimates suggesting a 0.5% monthly increase for December.

Bank of Canada monetary policy expectations remained anchored, with a Reuters survey indicating that most economists anticipate the central bank will maintain overnight interest rates at current levels throughout the year ahead.

Trade Row Escalates Between Washington and Ottawa

Beyond commodity markets and economic data, a significant diplomatic dispute between Canada and the United States dominated headlines. Canadian Prime Minister Mark Carney recently undertook a four-day trade mission to China to strengthen economic ties, followed by stops in Qatar for bilateral negotiations on trade, defense, and security matters. He then attended the World Economic Forum in Davos, Switzerland.

At the WEF gathering, Carney delivered remarks characterizing the U.S.-led global governance system as experiencing a “rupture” rather than merely a “transition,” with the traditional rules-based international order gradually dissolving. He called upon “middle powers” to unite against larger nations that deploy economic integration as a coercive tool. His comments garnered a standing ovation and achieved widespread international media coverage.

President Trump responded with displeasure, asserting that Canada’s prosperity depends fundamentally on the United States and its economic support. He subsequently rescinded an invitation for Canada to participate in his proposed “Board of Peace” initiative aimed at promoting global stability. Upon returning to Ottawa, Prime Minister Carney countered Trump’s assertions directly, emphasizing that Canadian strength derives from Canadian character—particularly the nation’s embrace of diversity as a competitive advantage rather than a vulnerability.

Market Sectors Show Divergent Performance

The broader trade dispute between the two nations continues to weigh on market sentiment, with Trump maintaining his firm opposition to resuming trade negotiations with Canada. Additionally, uncertainty persists regarding potential U.S. withdrawal from the United States-Mexico-Canada Agreement (USMCA). This sustained tension has raised concerns that the bilateral trade deficit may expand further in coming months.

Sectoral weakness emerged in several areas as investors reassessed risk exposure. Financials declined 0.22%, industrials fell 0.65%, consumer discretionary dropped 0.81%, and healthcare sector posted the steepest decline at 2.75%. Among individual stocks, Igm Financial Inc slid 2.23%, TMX Group Ltd retreated 1.63%, and Brookfield Asset Management Ltd declined 1.33%. Consumer-facing names Pet Valu Holdings Ltd and Linamar Corp lost 2.58% and 2.04% respectively.

The divergence in market performance reflects the competing forces shaping Canadian equities: near-term relief from receding tariff pressures against persistent concerns regarding trade policy continuity and economic cooling signals from retail sales data. This dynamic is likely to persist as long as bilateral trade tensions remain unresolved and geopolitical developments continue influencing commodity valuations.