The S&P/TSX Composite closed at 36,341.40 on Wednesday, up 809.12 points or 2.28%, its largest daily gain in seven months, on a day when WTI fell 8.29% to $88.12 and Brent fell 8.67% to $94.62. The index rose on a day oil dropped by more than 8%, which means the rally came from somewhere other than crude.
The source was politics and trade. Democrats took control of both houses of Congress, and Trading Economics tied the index move to hopes of easing Canada-U.S. trade tensions. The Canadian dollar reached its strongest level in more than two months, near 1.39 per U.S. dollar, and Canada reported a September trade surplus of C$5.4 billion, its largest since May 2022. For Canadian portfolios the day was a repricing of trade risk, and it was large enough that oil's fall did not offset it.
Why the TSX Rose While Oil Fell
Tuesday set the table. The TSX fell 269 points, or 0.8%, to 35,532 as a technology selloff, weaker metals and renewed U.S.-Iran tensions weighed on sentiment, with Shopify and Thomson Reuters among the decliners. Wednesday reversed it. In the United States the Dow rose 3.03% to 53,356.12, the S&P 500 rose 1.58% to 7,688.62 and the Nasdaq rose 1.44% to 25,736.51, while the VIX fell 20.26% to 16.61.
The S&P 500 sector split is the best available guide to the mechanism. Energy fell 4.74%, the weakest of 11 sectors, while financials rose 3.51% and materials rose 2.49%. Gold rose 3.29% to $4,070.20 an ounce, back above $4,000, which supports the materials group. The TSX is weighted to the same three groups, which is the likeliest reason a day with energy sharply lower still produced a large index gain.
The TSX gave back 2.0% in the three sessions after Oct. 29 and recovered all of it in one, closing 92 points above the Oct. 29 level and at the highest close of the last 25 sessions.
Candles run open to close with wicks at the session high and low, green for up days and red for down days. The dashed grey line is the average of the latest 10 closes, and the shaded band marks the three sessions from Oct. 30 to Nov. 3.
What Lower Yields and a Stronger Loonie Do to the Rate Trade
The Government of Canada 10-year yield fell about 8 basis points to 3.70% on Wednesday, according to Trading Economics. It was 3.84% on the day the Bank of Canada raised its rate to 2.5%, and it is down about 25 basis points over the past month. The mechanism is oil. A Brent price near $95 instead of $110 weakens the energy-inflation case behind the Bank's hike, and bond markets are repricing the path to the Dec. 9 decision accordingly.
The currency channel cuts both ways. The Canada-U.S. two-year yield gap, which favours the U.S. note, narrowed to about 129 basis points on Nov. 2 from as wide as 161 basis points in October, which has been supportive for the loonie. A stronger Canadian dollar trims the Canadian-dollar return on unhedged U.S. holdings: the S&P 500 gained 1.58% in U.S. dollars while the loonie rose about 0.3% in early trading against the 71.46 U.S. cents of Tuesday. Exporters outside energy face the same headwind.
Scotiabank strategists said on Nov. 2 that "Headlines have been constructive" on trade, after President Trump said the administration has the "concept" of a new deal with Canada. A concept is not an agreement, and the rally has priced the headline ahead of the paper.
The Levels That Decide Whether the Rally Holds
The index closed about 2.0% below its August record of 37,069.11. On the downside, the Oct. 30 low of 35,310.46 and the Nov. 3 low of 35,437.80 mark the zone where recent selling stalled. Oil is the unresolved variable: there is no ceasefire, a tanker was reported struck near Qatar early Thursday, and any escalation would hit the energy group that the rally has so far been able to absorb.
The practical read is that Wednesday was a repricing of trade risk, not a signal on earnings or the Bank of Canada. Many TSX companies, including Manulife, Cenovus, Nutrien, Lundin Mining and Sun Life, were scheduled to report on Wednesday, so company results can reset sector leadership within days. Rebalancing into strength is a decision about weights, and the weights of financials, energy and materials in a client portfolio set how much of this move it captured.