The Toronto Stock Exchange closed higher for a third-straight session on Tuesday, closing in on its March 2 record high as investors see strong fundamentals in equity markets, despite ongoing uncertainties around what impact the ongoing Iran war will have on the global economy and the outlook for interest rates everywhere.
The S&P/TSX Composite Index closed up 151.85 points to 34,290.73 as most sectors rallied to gains. The Battery Metals Index was up near 2.8%, Energy up 2.4% and Base Metals up 2.5%. In contrast, Info Tech was down about 1.7% and Health Care down 1.5%.
According to FactSet the TSX going in to today's session had been up 282.26 points or 0.83% over the prior two trading days, leaving it 1.16% off its record close of 34,541.27 on March 2. Going in to today, month-to-date the index was up 0.51% and year-to-date was up 2,426.12 points or 7.65%.
Despite a ceasefire being in place for over a month, the U.S.-Iran conflict remains unresolved, noted National Bank in its Monthly Fixed Income Monitor for May. "For now, all we can say with certainty is that the Strait of Hormuz remains effectively shuttered, keeping oil prices elevated," the bank said, before adding this oil supply shock only adds to an inflation backdrop that was growing problematic before the war even began. Meanwhile, downside employment risks continue to moderate, as the labor market appears to be strengthening, National Bank said.
"As recently as March, a majority of the FOMC anticipated delivering further rate cuts this year but this position is becoming increasingly difficult to defend. Markets have already stripped out all the easing that was once anticipated and now see the central bank on hold all year. We concur and expect that a June dot plot will show the same. While not our base case, we must acknowledge that near-term hikes are a greater risk than near-term cuts," the bank added.
In Canada, data has continued to disappoint in 2026, National Bank noted. It said the recovery seen briefly late last year is now a distant memory. "Back then," the bank added, "expectations for tighter policy were justified by a recovering jobs market, resilient growth and warm core inflation. Today's hike expectations have more to do with oil-driven price pressures than underlying economic strength. Despite markets flagging the risk of near-term hikes, we continue to judge that relatively well-contained inflation and lingering economic slack will allow the Bank to look through the shock, pushing an eventual return to neutral into 2027."
Of commodities, West Texas Intermediate crude oil oil closed higher a third session on the faltering ceasefire between the U.S. and Iran, which continues the largest-ever energy supply shock. WTI oil for June delivery closed up $4.11 to settle at US$102.18 per barrel, while July Brent oil was up $3.60 to US$107.81.
But gold had moved lower by midafternoon Tuesday, dropping for a second day as the dollar and yields rose after the U.S. reported inflation continued to surge last month on higher energy prices that followed the war on Iran. Gold for June delivery was down $43.50 to US$4,685.20 an ounce.