The Canadian and global market selloffs picked up on Monday from where they left off on Friday. Having plummeted more than 10% over the last two trading days, the Morningstar Canada Index fell more than 2% on Monday, in tandem with its global peers.
The S&P/TSX Composite Index fell 2.5% to 22,688.62 following a decline of more than 10% last week, as US President Donald Trump’s tariffs continue to whip up global market volatility. While investors try to make sense of what is seen as a dramatic shift in US international economic policy, the global market selloff continues unabated.
The Canadian dollar has reacted by edging lower. Having ended last week at C$1.421 against the US dollar, the loonie fell on Monday to C$1.425 amid anxiety over the worsening economic outlook and impending European retaliatory tariffs on US goods.
This could come while the markets are already reeling over the United States’ and China’s tit-for-tat levies announced last week. The US imposed 34% tariffs on Chinese goods on Wednesday. The Asian economic powerhouse retaliated with similar duties on US exports.
Notably, Canada was spared from Wednesday’s steep tariffs, but existing 25% levies on automotives, along with 10% on energy and a range of other goods outside the purview of the USMCA treaty, remain in place.
The markets have been fluctuating since this morning. After having somewhat recovered from the steep drop in the morning, they slid back again in the afternoon.
Following the global trend, Canadian markets have sold off aggressively over the past few days. “During periods of extreme volatility, large relief rallies can also occur,” says Josh Sheluk, chief investment officer and portfolio manager at Verecan Capital Management. While the new US tariffs are viewed negatively, Sheluk notes that “the larger concern is that markets now seem to be pricing in a higher probability of recession resulting from these tariffs.” He adds that the heightened recession risk is underpinning a clear risk-off movement in global stock markets.
Canadian Market Outperforms US Peers
While the global rout brought down the Canadian benchmark, analysts point out the index has continued to outperform its peers south of the border. “Canadian markets are actually holding up relatively well [since] they are embracing Tariffs and the uncertainty actually quite well relative to the rest of the other markets,” contends Sadiq S. Adatia, chief investment officer at Toronto-based BMO Global Asset Management.
Notably, the Morningstar US Index has fallen more than 20% since its peak on Feb. 18. By comparison, the Canada Index has fallen about 10% for the same period. Adatia attributes this outperformance to how “Canada is less tech-heavy, more reasonable on valuations, and has some more defensive areas like precious metals.” The defensive makeup of the Canadian stock market allows it “to do better in a more uncertain environment, like the one we are facing today.”
Are We Entering a Bear Market?
Based on how far and how fast the markets have fallen, the question is now how long it will last, and if the selloff marks the beginning of a bear market.
Adatia says it’s hard to tell for sure at this point, since the market is driven by tariff threats and a potential trade war instead of something more fundamental. “This can all end in a minute with some positive comments from Trump, so it really depends on what he does,” he says. “We still think that fundamentally, companies are fine and consumers are okay.”
If consumer behavior changes and they decide to save instead of spend, then “that has downstream implications that will impact earnings, growth, and eventually employment,” Adatia cautions, but he adds that “I would not say this is a long bear market quite yet.”
Sheluk holds a similar view, stressing that during high-volatility periods, markets can swing rapidly. Therefore, the degree and duration of a market decline are difficult to predict. “If a recession does materialize—though that’s not guaranteed—the market will likely fall further, and the downturn could last longer,” he notes. “Historically, market declines during recessions have been more severe and prolonged than those without a recession.”
That said, tariffs may be temporary and short-lived, and a quick recovery is possible. “Given the unpredictability, it’s generally wise for investors to avoid making major changes to their asset allocation and to remain patient,” advises Sheluk.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.