The S&P/TSX Composite closed Tuesday at 35,577.93, down about 3.7% from its August 25 high of 36,957.63, as base metals, financials, and technology names led the retreat while energy pulled the other way on a crude rally now in its third month. U.S. markets moved lower in the same session: the Dow Jones Industrial Average fell 487.17 points to 51,934.03, the S&P 500 fell 37.34 points to 7,582.64, and the Nasdaq Composite fell 182.82 points to 26,003.59.
Two Markets Inside One Index
WTI crude settled at $104.69 a barrel Monday, up $3.30 on the session, before easing slightly to $103.81 Tuesday on a reported 7.1 million barrel U.S. inventory build. Gold, by contrast, fell $30.60 to $4,321.30 an ounce, and the Canadian dollar slipped to 71.84 cents U.S. from 71.90 cents. The result on the TSX is an index where the energy sub-index is being pulled higher by the same Strait of Hormuz conflict that is dragging on rate-sensitive and cyclical names elsewhere in the composite.
That split is the real story here, more than the headline index level. A TSX investor holding a broad index fund is seeing a muted net effect because energy strength is offsetting weakness elsewhere. A TSX investor overweight financials or base metals is seeing a worse three weeks than the headline number suggests, and a TSX investor overweight energy is seeing a considerably better one.
The Fed Decision Adds a New Variable
Todays session unfolds ahead of a Federal Reserve decision this afternoon that CME FedWatch prices at a 92.7% probability of a 25 basis point hike, which would be the first increase since July 2023. A hike of that size tends to pressure equity valuations broadly and to support the U.S. dollar against the Canadian dollar specifically, a second cross-current on top of the energy divergence already splitting the index.
The chart below tracks the TSX Composite through the past four weeks, isolating the retreat from the August 25 high against the level heading into todays decision.
The TSX Composite has drifted lower since its August 25 high as rate-sensitive and cyclical sectors offset energy strength tied to the Hormuz-driven oil rally. Source: Investing.com daily close data.
What Todays Decision Changes Tomorrow
If the Fed delivers the expected hike this afternoon, the immediate Canadian read-through is currency, not the TSX level itself: a wider Canada-U.S. rate gap tends to weigh on the Canadian dollar, which raises the cost of U.S.-priced imports and adds a second inflation channel on top of the energy-driven one already pushing Canadian CPI higher. For the TSX specifically, the more important variable through year-end remains whether the Hormuz conflict continues to widen the gap between energy and everything else, or whether the broader index catches up to the sub-index that has been carrying it.