Canadian equities opened the trading week in negative territory, pressured by a hotter-than-anticipated inflation reading and escalating geopolitical trade concerns. The benchmark S&P/TSX Composite Index retreated from a record high, slipping 0.2 per cent at Monday's open and threatening to end a three-day streak of gains.
Inflation and Geopolitics Weigh on Markets
The primary catalyst for the market's cautious start was data from Statistics Canada showing the annual inflation rate accelerated to 2.4 per cent in December. This increase was attributed in part to a base-year effect from a consumer tax break implemented the previous year. The figure came in above many analyst forecasts, sparking fresh considerations about the economic landscape.
Simultaneously, investor sentiment was dampened by international trade tensions. Reports surfaced that the Canadian government is considering a deployment of troops to Greenland, a move that has drawn threats of additional tariffs from then-U.S. President Donald Trump. This geopolitical friction added a layer of uncertainty for markets already digesting the inflation data.
Sector Performance and Earnings Outlook
The market's decline was not uniform across all sectors. Losses were primarily concentrated in the technology and financial sectors, which are often sensitive to interest rate and economic growth expectations. In a contrasting move, shares of gold and silver mining companies advanced, buoyed by rising prices for the precious metals, which are traditionally seen as safe-haven assets during periods of market stress or inflation.
Despite the day's pullback, the underlying corporate earnings picture for Canada remains robust. In a client note, Jean-Michel Gauthier, quantitative and index strategist at Scotiabank, projected that S&P/TSX index members are poised for another strong earnings season. He forecasts fourth-quarter earnings to rise by 14 per cent year-over-year as reporting begins in earnest next week.
Analyst Maintains Long-Term Optimism for TSX
Gauthier's outlook for the Canadian market extends beyond the current quarter's volatility. He emphasized that leadership in 2026 earnings per share (EPS), combined with strength in the precious metals sector, should rekindle interest from both domestic and foreign investors.
"Overall, 2026 EPS leadership and precious metal strength should rekindle domestic and foreign investors’ appetite for the Canadian equity market," Gauthier wrote. "This should help narrow the valuation discount to the U.S. and further position the TSX for another year of outperformance." This perspective suggests that Monday's dip may be a short-term reaction within a longer-term positive trend for Canadian stocks, contingent on sustained corporate profitability and commodity prices.
