The TSX's 1.04% gain on Monday was built on a structurally unusual foundation: the Iran MOU announcement hit markets on a day when the United States was closed for Memorial Day. The TSX processed the framework entirely on its own -- no S&P 500 direction, no US bond market yield signal, no Wall Street read-through. The result was a gain driven by the sectors the TSX has that New York does not: Canadian banks pricing out stagflation risk, gold miners repricing on geopolitical residue, and energy names absorbing the full weight of the crude pullback without the counterbalance of a functioning US energy futures market.
Tuesday changes the picture. With Wall Street reopening this morning for the first time since Friday's close at S&P 500 7,473.47, both markets now process the same Iran framework simultaneously. The question the TSX faces today is whether Monday's move was directionally correct and appropriately sized, or whether it ran ahead of what a fully functioning North American market would have produced.
The Sector Read That Monday Delivered
Monday's TSX session produced a clean analytical signal about how the market is reading the MOU. Financials and gold miners rallied; energy sold. The logic is internally consistent. Lower oil reduces stagflation risk, which supports rate-sensitive financials by flattening the probability of a BoC hike. Gold holds because the nuclear file -- the most durable source of geopolitical uncertainty -- remains unresolved. Energy falls because the war premium that built through March and April is deflating on Hormuz reopening expectations.
The TSX Capped Energy Index closed Monday at 423.39, down 3.38% on the session and now more than 10% below its mid-May peak of approximately 471. Canadian Natural Resources fell 3.6% Monday; Suncor lost 3.0%. Over the past week the energy sector has shed more than a month's worth of war-premium accumulation in four trading sessions. The critical analytical question is whether that deflation reflects the realistic settlement scenario or the optimistic one.
The TSX bottomed at 31,935 the week of March 9 -- five days after the Hormuz closure -- and has recovered 9% to 34,831 by Monday's close. Monday's gain was the largest single-session move in four weeks and occurred without US market participation.
The chart above shows the TSX composite's weekly trajectory from the pre-conflict baseline through Monday's close, with the Hormuz closure, the April 8 ceasefire, and Sunday's MOU all marked. The pattern of recovery around each diplomatic development is the context for reading this week's move.
CAD and the Terms-of-Trade Reversal
The Canadian dollar has weakened to 0.7236 against the US dollar Tuesday morning, down from 0.7244 at Monday's close. This is the more precise signal about how currency markets are reading the Iran framework's implications for Canada specifically. Canada is a net oil exporter. The war premium that drove Brent above $110/bbl was a terms-of-trade benefit: Canadian energy revenues rose, national income transferred to the energy sector, and the CAD traded with a commodity support it would not otherwise have had.
As that premium deflates -- Brent has fallen from $110 to $98 in a week -- the CAD loses that support. A complete Hormuz reopening that normalizes Brent toward $80/bbl would represent a significant terms-of-trade reversal for Canada. The Bank of Canada's April MPR projected Brent declining from $90/bbl in Q2 toward $75/bbl by mid-2027. If the MOU accelerates that trajectory into Q3 2026, the CAD faces a more rapid adjustment than the April baseline assumed.
Bank Earnings Week: The Real TSX Test
The Iran MOU is not the only variable the TSX is pricing this week. The Big Six Canadian banks -- collectively representing approximately 33% of the index -- report Q2 fiscal 2026 earnings across Wednesday through Friday. BMO and Scotiabank report Wednesday. RBC, TD, and CIBC report Thursday. National Bank closes the week Friday.
The banks enter earnings week having already moved higher on Monday's relief trade: RBC +0.9%, TD +1.1%, BMO +0.9% in Monday's session. Q1 results in late February were broadly strong across the sector -- all six banks beat estimates, capital markets and wealth management drove revenue growth, and provisions for credit losses remained contained. The Q2 question is whether the oil shock has produced any deterioration in credit quality, particularly in energy-sector loan books and in consumer credit among the household segment most exposed to higher gasoline costs.
A strong Q2 earnings sweep from the banks, combined with continued easing in oil prices, would provide the TSX with two simultaneous tailwinds that could push the composite toward or through its May 22 intraday high of 34,574. A miss on provisions, or a cautious guidance tone referencing oil-price uncertainty, would test whether Monday's relief trade was premature.
The Wall Street Reopening Variable
The S&P 500 closed Friday May 22 at 7,473.47, within 1% of its all-time high, having processed the Iran optimism narrative across last week's sessions. The Dow set a new intraday record Friday at 50,579.70. US markets enter Tuesday with a positive posture already established -- the MOU framework is not new information for American investors the way it functioned for the TSX on Monday.
The risk for the TSX is a muted US open that signals the relief trade is already priced, combined with a WTI crude price that continues lower and a CAD that softens further. In that scenario, the TSX's energy sector faces additional selling pressure on top of Monday's decline, the financials' Monday gains face profit-taking, and the composite gives back a portion of the 1.04% advance. That is not the base case -- but it is the scenario a disciplined advisor should understand before interpreting this week's TSX direction as confirmation that the geopolitical resolution is complete.