Two shocks landed on Canadian markets within three weeks of each other this month, and they are not pulling the index in the same direction.
On August 22, the United States imposed a 50 percent tariff on Canadian goods under Section 338 of the 1930 Tariff Act, the first use of that provision since it was written, after trade talks between Prime Minister Mark Carney and the US administration broke down. The tariff hit alcohol, hockey equipment, cement, and dairy products. Energy, potash, and critical minerals were explicitly exempted. Canada answered September 8 with dollar-for-dollar retaliatory tariffs on US dairy, appliances, agricultural equipment, pulp and paper, and electronics, covering trade that ran to $376 billion in the first half of 2026 alone.
Why the Exemption Is the Whole Story for the TSX
The energy exemption is the mechanism that decides how this reaches Canadian portfolios. The TSX Composite carries its largest weighting in energy and materials, the two sectors least exposed to the tariff fight and most exposed to the other shock underway this month in the Strait of Hormuz.
Brent crude has swung from $88.10 to a September peak of $108.75 and back near $100 in a single month, a range wide enough to keep the TSX energy sector richly supported while the tariff-exposed side of the index quietly breaks down underneath it.
Brent crude gained more than 20 percent in the three weeks after Canada retaliatory tariffs took effect, a move driven entirely by the Strait of Hormuz situation rather than the trade file. Source: ICE Brent futures.
The Base Case Versus the Tail Risk
The base case is that the two shocks partially offset at the index level. Energy strength props up the TSX Composite even as tariff-exposed sectors weaken beneath the surface, leaving the headline number looking calmer than the sector-level picture underneath it. Industrials, consumer staples, consumer discretionary, utilities, and health care have all broken below their 200-day moving averages while energy and materials carry the index.
The tail risk sits on both fronts. Average daily tanker crossings through Hormuz have fallen to roughly 10 over the past ten days, against a chokepoint that normally carries close to one-fifth of global oil supply, leaving room for a wider naval incident to do more damage than the market has priced. On the trade side, a further round of US measures that reaches into the currently exempted energy and critical minerals categories would remove the one buffer keeping the TSX headline number calm. Neither is the expected outcome, but both are worth tracking into the fourth quarter.
What This Means for Portfolio Construction, Not Just the Index Level
A mandate that simply tracks the TSX Composite level has looked resilient through both shocks this month. The same mandate broken down by sector tells a different story, one where roughly half the index sectors sit below their own long-term trend lines. The headline number and the underlying composition are not describing the same market.