Canadian Equities Rally as Tariff Threats Recede, But Trade Tensions Simmer

The S&P/TSX Composite Index surged forward on Friday, capturing the momentum from the previous two trading sessions as investors rotated toward safer positions amid receding tariff anxieties. The benchmark closed at 33,144.98, advancing 142.28 points or 0.43%, with seven of eleven sectors posting gains. The session was characterized by sharp movements in commodity-linked stocks, particularly those tied to gold and oil, which benefited from renewed geopolitical tensions in the Middle East.

Relief as EU Tariff Pressures Begin to Recede

The primary catalyst for Friday’s advance came from U.S. President Donald Trump’s reassurances that the administration would not pursue aggressive measures to control Greenland. This statement, coupled with news that the U.S. has achieved a “framework” agreement with NATO Secretary General Mark Rutte, provided a welcome respite for market participants who had grown increasingly concerned about trade escalation. The softening rhetoric around tariff threats against the European Union helped ease investor anxiety, though concerns about broader protectionist policies remain elevated given Trump’s hardened stance on trade with other partners.

Geopolitical Escalation Drives Gold and Oil Higher

While tariff pressures began to ease, geopolitical tensions took center stage. Trump confirmed that U.S. military assets are mobilizing toward Iran, with the president describing the deployment as a “big flotilla” and an “armada.” He acknowledged that these forces represent a show of strength but expressed hope that their use would not be necessary. This escalation in U.S.-Iran relations proved particularly bullish for commodity markets. Gold and crude oil prices surged sharply in response, providing substantial support to Canada’s materials and energy sectors. The Materials sector led all gainers with a 1.65% advance, while Energy followed with a 1.15% gain.

Economic Data Signals Mixed Retail Landscape

Statistics Canada released retail sales data for December 2025 showing a month-over-month decline of 0.5%, marking the sharpest monthly contraction in three months. The figure represented a reversal from November’s robust 1.3% monthly gain and an annual comparison that showed sales up 3.10% year-over-year. Manufacturing data proved more encouraging, with preliminary estimates suggesting a 0.5% increase in December sales. Looking ahead, Reuters polling indicates that a majority of Canadian economists anticipate the Bank of Canada will maintain its overnight interest rates unchanged throughout the year.

Diplomatic Tensions Add Long-Term Uncertainty

The bright spot in tariff pressures receding was offset by intensifying trade friction between Canada and the United States. Prime Minister Mark Carney recently concluded a four-day diplomatic mission to reset trade relationships, visiting China to negotiate bilateral agreements, Qatar to finalize defense and security arrangements, and Switzerland to participate in the World Economic Forum. During his Davos address, Carney declared that the U.S.-led international order is experiencing “a rupture” rather than “a transition,” calling on middle powers to unite against larger nations that weaponize economic integration.

Trump responded swiftly to Carney’s remarks, stating that Canada’s prosperity depends entirely on American support and that Carney should remember the benefits Canada receives. The president subsequently withdrew his invitation for Canada to participate in his “Board of Peace” initiative. Carney returned to defend Canada’s position firmly, asserting that Canadian success stems from its diverse population and institutional strength, not American benevolence. Despite these diplomatic exchanges, Trump has shown no willingness to resume trade negotiations with Canada, and the threat of U.S. withdrawal from the Canada-United States-Mexico trade agreement remains an active concern.

Sector Winners and Losers in Today’s Trading

Beyond the materials and energy outperformance, Information Technology advanced 1.39%, Communication Services gained 0.39%, while Real Estate and Utilities each edged up 0.34%. Consumer Staples posted a modest 0.15% gain. Among individual equities, Capstone Mining Corp led gainers with an 8.78% jump, followed by Aya Gold and Silver Inc at 6.42%, Discovery Silver Corp at 6.40%, Celestica Inc at 3.81%, Paramount Resources Ltd at 3.71%, and Birchcliff Energy Ltd at 2.53%.

On the downside, Healthcare registered the largest sector decline at 2.75%, with Consumer Discretionary falling 0.81%, Industrials down 0.65%, and Financials declining 0.22%. Notable individual decliners included Pet Valu Holdings Ltd down 2.58%, Linamar Corp down 2.04%, Igm Financial Inc down 2.23%, TMX Group Ltd down 1.63%, and Brookfield Asset Management Ltd down 1.33%.

Long-Term Trade Risks Persist Despite Near-Term Relief

As tariff concerns temporarily recede on the headlines, the underlying trade tensions between North America’s two largest economies remain unresolved. The prospect of a U.S. withdrawal from the continental trade agreement continues to hang over the market. This backdrop of persistent diplomatic friction and trade uncertainty suggests that while investors may find temporary solace in the softening of EU tariff rhetoric, the broader risk landscape for Canadian equities remains tilted toward caution, particularly for companies with significant U.S. exposure or dependence on cross-border supply chains.