Stock Market Performance in Canada and the U.S. in January 2025

Impact of Tariff Negotiations on Early February Markets

Canadian Stock Market Performance

Throughout January 2025, the Canadian stock market exhibited a steady upward trend. The S&P/TSX Composite Index, the benchmark for Canadian equities, began the month at 20,500 points and closed at 21,200 points, marking a 3.41% increase. This growth was primarily driven by robust performances in the energy, financial, and technology sectors. The energy sector benefitted from rising oil prices, while positive earnings reports from major banks fueled gains in the financial sector.

U.S. Stock Market Performance

In contrast, the U.S. stock market experienced a more volatile January. The S&P 500 Index started the month at 4,700 points, saw an initial rise to 4,800 points, but ended at 4,650 points, reflecting a slight decline of 1.06%. The market volatility was largely influenced by fluctuating investor sentiment around the Federal Reserve's monetary policy, inflation concerns, and mixed earnings reports from key sectors such as technology and consumer goods.

Impact of Tariff Negotiations in Early February

As markets transitioned into February, the focus shifted to the ongoing tariff negotiations between Canada and the United States. These negotiations were critical, as they had significant implications for trade relations, supply chains, and economic growth in both countries.

Most investors seemed convinced that the threatened tariffs on Canadian goods by the Americans would not come to fruition. The overriding sentiment seemed to be that the tariffs were a negotiating position designed to make Canada give something up. Then, all of a sudden, they seemed real over the first weekend of February, only to find that both Mexico and Canada were able to make deals that delayed the tariffs by 30 days.

Market Reactions and Volatility

The stock market has managed to stay positive throughout his process, but was down significantly on the morning of Feb 3, until the deals with Mexico and Canada were announced.

However, we are clearly not out of the woods yet. It is unclear to me exactly what Donald Trump wants. It can’t really be fentanyl because Canada is less than 1% of the fentanyl that enters the U.S. If we don’t know what he is really after, it will be hard to strike a more permanent deal. As we get closer to Jan 31, if there is no deal, we can expect continued volatility in the stock markets.

The uncertainty surrounding the potential outcomes of the negotiations led to increased market volatility. Concerns over the potential for increased tariffs and their impact on cross-border trade and corporate profits created a cautious trading environment. Both indices experienced fluctuations, with investors closely monitoring news updates and statements from key officials involved in the negotiations.

Sector-Specific Impacts

The negotiations had sector-specific impacts as well. In Canada, industries heavily reliant on exports to the U.S., such as automotive and manufacturing, faced heightened scrutiny. Stocks in these sectors experienced sharper fluctuations compared to others, reflecting the high stakes involved in the negotiation outcomes.

In the U.S., sectors dependent on Canadian imports, such as raw materials and agricultural products, also faced volatility. Companies in these sectors saw their stock prices react to the ebb and flow of the negotiation progress, with potential tariff increases posing risks to their supply chains and cost structures.

Conclusion

The performance of the stock markets in Canada and the U.S. during January 2025 highlighted the distinct economic environments and sector dynamics at play. The transition into February, dominated by tariff negotiations, underscored the interconnectedness of the two economies and the significant influence of trade policies on market sentiment and investor behaviour. As negotiations continue, both markets remain vigilant, with investors poised to respond to developments that could shape the economic landscape in the months ahead.

Disclaimer:

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Michael Stott, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.