Canada's S&P/TSX Composite index closed lower on Thursday as traders weighed the market fallout from a widening Middle East conflict and digested a mix of economic and corporate developments.
The benchmark was down 1.23% at 33,527.89, after having climbed 0.5% to 33,942.86 on Wednesday when it recovered from steep losses recorded the prior session. Despite the midweek rally, the index remained beneath record highs reached earlier in the week.
Sector moves
Within the Canadian market, financial stocks posted gains, and the materials sector, which includes metal miners, also advanced. Gold prices rose in Thursday trading, helped in part by a temporary easing in the U.S. dollar's strength.
U.S. markets and overnight momentum
U.S. equity indices tracked a softer tone on the session. The S&P 500 fell 0.8% to 6,817.45 points, the Nasdaq Composite declined 0.5% to 22,705.75 points, and the Dow Jones Industrial Average slid 1.5% to 47,998.21 points.
Those losses followed a stronger performance on Wednesday, when the Dow rose 0.5%, the S&P 500 gained 0.8% and the Nasdaq climbed 1.3%. A string of robust economic readings and reports suggesting Iran had sought increased dialogue with other parties helped underpin risk appetite during that session.
Middle East conflict escalates
Investor concern over the conflict in the Middle East hardened as Iran launched a wave of missiles at Israel, marking a sixth consecutive day of hostilities. The strikes came shortly after the U.S. Senate voted, largely along party lines, against a motion intended to halt the air campaign and require congressional authorization for military action.
The White House on Wednesday said Mojtaba Khamenei, the son of Iran’s slain supreme leader, has emerged as a frontrunner to succeed him, a development that the administration suggested indicated Tehran would not readily yield to external pressure.
One direct consequence already visible is higher pump prices for American consumers, a development that could have broader implications for U.S. economic growth should it persist.
International Monetary Fund Managing Director Kristalina Georgieva warned that the conflict was testing "global economic resilience." "This conflict, if proven to be prolonged, has obvious potential to affect global energy prices, market sentiments, growth and inflation. And it would place new demands on the shoulders of policy-makers everywhere," she said earlier Thursday.
Macro data and policy outlook
Investors did receive some encouraging domestic signals earlier in the week. Private payrolls for February came in stronger than expected, pointing to continued labor market expansion, and ISM’s purchasing managers index for the U.S. service sector rose to an over three-year high in February, underlining resilient domestic demand. The Federal Reserve’s Beige Book also reflected an upbeat economic tone.
Those prints landed ahead of Challenger job cuts data due later in the session and the closely watched U.S. nonfarm payrolls report due on Friday.
Analysts at Deutsche Bank noted the significance of the data for policy expectations: "That backdrop of strong data meant investors kept pricing out the likelihood of an H1 rate cut from the Fed," said analysts at Deutsche Bank, in a note. "Indeed, the probability of a cut by the June meeting (which would be the first with a new Chair) fell to just 39% by the close, the lowest so far this year. So clearly there’s growing scepticism that a new Chair can start cutting straight away, particularly with the data as strong as it is right now."
Corporate headlines
Retailers were in focus for Thursday’s earnings slate, with results expected from Kroger Company (NYSE:KR), Burlington Stores (NYSE:BURL) and BJs Wholesale (NYSE:BJ) before the market open, and from Costco Wholesale (NASDAQ:COST) after the close.
Chipmaker Broadcom (NASDAQ:AVGO) moved sharply higher in premarket trading after reporting quarterly results that beat expectations on both the top and bottom lines. The company also issued current-quarter revenue guidance above market forecasts and announced a share buyback program of up to $10 billion.
Commodities react to geopolitics
Crude oil extended gains as the conflict sustained fears of supply interruptions from a major producing region. Brent futures rose 2.4% to $83.38 a barrel and U.S. West Texas Intermediate crude futures climbed 2.9% to $76.81 a barrel.
Market participants noted Iran had targeted tankers in the Strait of Hormuz, a narrow chokepoint through which about one-fifth of the world’s oil and liquefied natural gas passes, and effectively closed traffic through the passage. Both benchmarks were higher for a fifth consecutive session, with Brent reaching its highest level since July 2024.
Gold also benefited from the geopolitical shock, gaining ground as investors sought safe-haven holdings. At 07:41 ET, spot gold traded 0.5% higher at $5,166.04 an ounce, after briefly rising above $5,200/oz earlier in the day. U.S. gold futures were up 0.8% at $5,176.39/oz. The metal had climbed 1% in the prior session, rebounding from a near 5% retreat the previous day when a firmer dollar pressured prices.
ING analysts cautioned that gold faces offsetting forces: "Looking ahead, gold faces competing macro forces," said analysts at ING, in a note. "The inflationary impact of the Middle East conflict, via sharply higher energy prices, could reinforce expectations of higher interest rates for longer -- a headwind for non‑yielding assets such as gold." "However, elevated geopolitical uncertainty continues to support a risk premium, helping to underpin prices despite the challenging rates backdrop," they added.
What to watch next
Market participants will be monitoring the U.S. jobs data and other economic releases later in the week for further clues on the durability of the recent data strength and how quickly the Federal Reserve might pivot on policy. Geopolitical developments in the Middle East will remain a key driver for energy markets and for risk sentiment more broadly, and corporate earnings will continue to influence sector rotation and stock-level performance.
For Canadian investors, the interplay between external geopolitical shocks, commodity prices and domestic financial and materials sector performance will be central to near-term market direction.