Canada's primary stock index moved decisively lower on Tuesday, halting a brief run to fresh highs as market participants weighed the economic implications of an intensifying conflict centered on Iran and expanding violence across the Middle East.
The S&P/TSX Composite index declined by 822 points, a fall of 2.38%, ending the session at 33,714.36. Earlier, the S&P/TSX 60 index standard futures contract had fallen about 41 points, or 2.1% as traders adjusted positions in response to heightened geopolitical risk.
The retreat marked a reversal after the TSX recorded an intraday peak the previous session, when the index rose 0.6% to 34,541.27 and established a new all-time high. That earlier advance was largely driven by strong performance in energy-related names, as oil and gas prices jumped on concerns that flows through the strategically important Strait of Hormuz could be disrupted.
Energy carries considerable influence on the TSX, representing just under one-fifth of the index's weight, and the sector's surge sent it to its highest level since September 2008 during the prior trading day. That concentration in commodity-linked issuers amplified the index's sensitivity to moves in crude products.
U.S. markets also sold off
Across the border, major U.S. equity benchmarks turned sharply lower on Tuesday amid growing worries that the conflict could slow global growth by pushing energy prices higher and stoking inflation pressures.
The benchmark S&P 500 index slipped 2.1% to 6,738.38 points. The NASDAQ Composite, which is technology-heavy, fell 2.3% to 22,226.44 points. The Dow Jones Industrial Average dropped 2.4% to 47,739.46 points. These moves followed a session earlier in the week in which the S&P 500 and NASDAQ ended modestly higher after recovering from steep early losses brought on by weekend military actions.
Geopolitical escalation and inflation concerns
Market sentiment deteriorated despite a relatively constructive close on Monday, driven by reports that the regional conflict was broadening. The situation intensified after Iranian forces used drones that struck a U.S. embassy in Riyadh and targeted Amazon data centers in the UAE and Bahrain, while Iranian retaliation included strikes across several Middle Eastern nations, according to reports.
In reaction to the deteriorating security environment, the U.S. State Department announced the ordered departure of non-emergency U.S. government personnel and family members from Bahrain, Iraq and Jordan.
Recent hostilities escalated quickly after the U.S. and Israel carried out an air campaign against Iran, striking Tehran and killing Iranian Supreme Leader Ali Khamenei. Iran and its ally Hezbollah have since retaliated, expanding the geographic scope of the confrontation and raising concerns about broader disruption in the Gulf region.
President Donald Trump, speaking publicly for the first time since the attacks began, said the U.S. was "already substantially ahead of our time projections," and affirmed a willingness to do whatever it takes. He later posted that the U.S. possesses a "virtually unlimited" supply of some types of weapons.
Investors have been focused on the inflationary shock that an extended conflict could impose. Oil prices moved sharply higher on fears that flows through the Strait of Hormuz might be interrupted, potentially lifting global inflation and prompting central banks to maintain or even tighten policy.
"The rise in the oil price represents a negative supply-side shock, which raises inflation and downside growth risks. The outcome for economies will depend on how long the conflict lasts," ANZ analysts said in a note, highlighting the delicate trade-off between inflation and growth that markets are pricing.
Against this backdrop, expectations have firmed that the Federal Reserve is unlikely to cut interest rates in the near term. Several Fed officials - John Williams, Jeffrey Schmid and Neel Kashkari - were scheduled to speak later in the day, and markets were parsing their remarks for any shift in tone.
Economic calendar and data flow
Tuesday offered little in the way of major U.S. economic releases, but the remainder of the week contained a fuller agenda. Key upcoming items include January retail sales, ADP employment figures and the highly watched nonfarm payrolls report, each capable of influencing near-term rate expectations.
Data released Monday on U.S. purchasing managers indexes for February surprised to the upside. Manufacturing activity expanded for a second consecutive month, and new orders rose sharply, outpacing consensus expectations. However, the Institute for Supply Management survey also showed manufacturing prices increasing substantially in February - a trend that predates the recent energy shock tied to the Middle Eastern conflict.
Corporate news: Target and CrowdStrike
In corporate developments, Target offered a bullish profit forecast for the current year, lifting its shares in premarket U.S. trade. The Minnesota-based retailer projected unadjusted and adjusted full-year earnings per share of $7.50 to $8.50, a range that sits above Bloomberg's consensus estimate of $7.61 at the midpoint.
Target expects full-year net sales to grow by "around 2%" versus 2025. The company said comparable sales should show a small increase, and that new stores plus non-merchandise sales would contribute more than one percentage point of the projected growth. Management also signaled an operating income margin roughly 20 basis points higher than 2025's 4.6% level. CEO Michael Fiddelke described a "healthy, positive sales increase" in February and characterized the month as an important step on the path back to growth this year.
Technology and cybersecurity company CrowdStrike is scheduled to release quarterly results after the market close on Tuesday, an event that could generate volatility in equity markets and within the cybersecurity sector depending on the reported metrics and outlook.
Commodities: crude and bullion
Crude oil continued to climb, amplifying the previous session's sharp gains amid ongoing threats to shipments through the Strait of Hormuz. Brent futures surged 8.6% to $84.36 a barrel, while U.S. West Texas Intermediate crude jumped 8.3% to $77.12 a barrel. Both contracts recorded gains of more than 7% in the session, having earlier in the trading day climbed as much as 13% to one-year highs.
Tensions were heightened by statements from Iranian officials indicating that any vessel attempting to transit the Strait of Hormuz could be subject to attack, increasing the perceived risk of disrupted crude flows from principal Gulf producers.
Precious metals saw mixed moves. Spot gold, which often acts as a safe-haven asset in times of geopolitical uncertainty, gave back earlier gains and traded lower as a firmer U.S. dollar reduced bullion's appeal. Spot gold was last down 2.9% at $5,172.12 an ounce, after earlier touching $5,379.65/oz, and U.S. Gold Futures were down 2.5% at $5,181.71/oz. The metal had posted a 1% advance in the previous session.
What to watch next
Market participants will be monitoring developments on multiple fronts: the trajectory of the Middle Eastern conflict and any wider disruptions to energy shipments; commentary from Federal Reserve officials for indications about the policy path; upcoming U.S. data on retail sales and payrolls for signals on economic momentum; and corporate earnings, such as CrowdStrike's report, for insights on sectoral demand and profitability. Each of these elements could influence inflation expectations, risk appetite and the relative performance of commodity-linked versus domestically focused sectors.
Given the combination of geopolitical risk, volatile commodity prices and a busy economic calendar ahead, investors face a period of elevated uncertainty that is likely to keep market volatility elevated until greater clarity emerges on both the regional security situation and the incoming economic data flow.