(Bloomberg) -- One day of extreme volatility has shaken Canada’s stock market to the point that strategists may re-consider their benchmark targets for the entire year.
So says Philip Petursson, chief investment strategist at IG Wealth Management. Stock-market prognosticators on both sides of the border that didn’t incorporate US President Donald Trump’s tariffs into their outlooks will probably need to lower their year-end expectations for the S&P/TSX Composite Index and the S&P 500 Index, he said.
The S&P/TSX Composite Index plunged 3.1% at the open on Monday, before paring its loss to 1.1% over the course of the day, led lower by industrial stocks with cross-border supply chains. And while news after the closing bell that US tariffs on Canada would be paused 30 days eased the near-term risk, in the long run, the uncertainty lingers.
“Even if these tariffs are only in place for let’s say a month, that’s still a month’s worth of potential damage to earnings for the full year,” Petursson said. “No one knows what the trigger to a correction is ever going to be, but this certainly could be it.”
The tariffs Trump planned are “much worse than the market expected,” CIBC Capital Markets analyst Ian de Verteuil wrote, adding that he expects to see a 5% correction in Canadian equities. That’s smaller than others on Wall Street and on Toronto’s Bay Street expect, including Jefferies Group LLC analyst John Aiken who said Monday there could be potential for an immediate 10% impact and a 20% decline for the index longer-term.
The S&P/TSX Composite Index is expected to rise to 28,517 points this year, according to data compiled by Bloomberg, which would represent a 13% gain from Monday’s close.
Trump’s tariffs may impact the nation’s monetary policy as well. Traders now see a higher likelihood the Bank of Canada cuts rates at its next meeting and more aggressively over the course of 2025. The market is now fully pricing in a 25 basis-point rate reduction at the bank’s March 12 meeting, up from a perceived 75% chance last week.
“The market will probably do a full court press on rate cut pricing,” said Jason Daw, head of North America rates strategy at RBC Capital Markets wrote in a Sunday note to clients. He said the central bank is now more likely to cut rates below 2% by the end of this year, from 3% currently.
To be sure, some on Bay Street have held expectations steady for the S&P/TSX Composite Index this year. Brian Belski, chief market strategist at BMO Capital Markets, held his year-end 2025 target for the S&P/TSX Composite at 28,500 on Monday morning and did not adjust his earnings target for companies in the benchmark this year.
“Fear of the unknown typically generates chaos (in other words, volatility) — reactions that could likely bring opportunity in our view,” he said.
Stepping back from the short-term risks of impending tariffs, strategists see the potential for longer-term trouble.
“This is the first round,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. If the tariffs on Canada drag on, there will be “continued volatility, but once this first wave settles down, then you just kind of get into a grind situation.”
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