(Bloomberg) — Canada’s benchmark stock gauge fell the most since August after US President Donald Trump signed an executive order on tariffs over the weekend, with analysts saying a sharp correction could be in store over the longer term.
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The S&P/TSX Composite index fell by as much as 3% right after the markets opened in Toronto on Monday, suffering its worst intraday decline since August 2024. The index reversed some of the losses later in the morning as Mexican President Claudia Sheinbaum said tariffs against her country would be delayed for a month.
“The immediate impact could be a decline of upwards of 10%” as the S&P/TSX Composite Index catches up with the recent decline in the Canadian dollar, said analysts with Jefferies Group LLC, including John Aiken. Over the longer term, tariffs of 25% on most goods from Canada, and 10% on energy, could lead to “an upwards of 20% decline in the index,” Aiken and his team wrote.
The loonie fell to its lowest intraday level against the dollar in nearly 22 years before paring losses. It was recently down around 0.5% at 1.4602.
Bank of Nova Scotia analyst Hugo Ste-Marie called the trade war the “worst possible scenario” for Canada, given that the country now faces broad, steep and likely prolonged tariffs with its biggest trading partner. Economic growth was lagging and productivity was soft already, Ste-Marie added.
Citing the inflationary effects of the tariffs, Loop Capital Markets LLC cut price targets on exposed companies, including Canada’s railways Canadian Pacific Kansas City Ltd. and Canadian National Railway Co.
“We find the targeting of Canada particularly absurd. You don’t get to choose your neighbors, but most countries would kill to have one as friendly, stable, reasonable and reliable as Canada,” Loop Capital Managing Director Rick Paterson said in a note to clients downgrading the two railways.
To be sure, it’s possible the impact on Canadian stocks will be “limited” in the near term, said Bloomberg Intelligence strategists Gillian Wolff and Gina Martin Adams. “Most of Canada’s exports of auto parts, pharmaceuticals and electronics to the US are produced by foreign (mostly US) companies that would bear the tariff burden in the short term,” they wrote.