The TSX, Canada’s main stock index, remains near record highs even as the Canadian economy shows signs of stalling. The longer-term outlook for the TSX remains bullish. The Canadian economy, on the other hand, will take some time to heat up.
First, the TSX hit a fresh record high of 37,069.69 back on August 26, juiced by strong corporate earnings, rising crude oil prices, and optimism that a ceasefire in the Middle East was imminent. Fast forward a month, and the TSX remains near record levels at 35,800—up approximately 13% year-to-date and 20% on an annual basis.
Part of the reason for the strong performance is ongoing tensions in the Middle East with crude oil prices above $90 per barrel. With October just around the corner, we’ll soon be entering earnings season. Can another strong quarter help send the TSX to record highs? Some of that will, of course, depend not just on what’s happening in the Middle East, but also on how the Canadian economy is doing.
What’s Going on with the Canadian Economy?
When it comes to the Canadian economy, there’s a lot of confusion about the state of things. Earlier this year, the Canadian economy slipped into a technical recession, that is, two consecutive quarters of negative growth.
Statistics Canada announced that the Canadian economy grew 0.8% in the second quarter. The media, though, used Statistics Canada’s 3.3% annualized growth rate, which is a little misleading. That’s the projected growth rate for the entire calendar year should the Canadian economy continue to grow at the same rate as it did last quarter.
Early indications are that the Canadian economy isn’t. In August, Canada’s unemployment rate was stuck at 6.4%, with the economy experiencing broad-based declines. The Canadian economy also shed 42,000 jobs.
Statistics Canada recently released additional data that suggests the Canadian economy is stalling. Retail sales fell 0.7% in July to $73.7 billion. Sales fell in eight of nine subsectors: sales at general merchandise retailers dropped 1.9% after rising 2.5% in June. Sales at clothing, clothing accessories, shoes, jewellery, luggage, and leather goods retailers fell 1.2%.
On the plus side, Statistics Canada said early estimates for August suggest a gain of 1.3%, but that number, it cautioned, would be revised.
Statistics Canada also reported that July’s manufacturing numbers also experienced a setback. After five consecutive months of increases, total manufacturing sales were down 0.4% in July at $78.7 billion.
We’ll get a better understanding of how the Canadian economy is doing after August’s gross domestic product (GDP) numbers come out in late September. If you’ll recall, the U.S. slapped the Canadian economy with 50% tariffs on 5% of imports from Canada on August 22.
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The Canadian economy is expected to report positive GDP growth in the third quarter, but as always, time will tell. Will the Bank of Canada need to respond by hiking interest rates later this year, and/or how many times will it raise interest rates in 2027? How will this impact the TSX? To find out, speak to the trading experts at Learn-to-Trade.com.
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