Energy stocks dragged the Toronto Stock Exchange into negative territory Wednesday as crude oil prices tumbled to their lowest level in three months, creating a stark contrast with U.S. markets that continued their upward momentum.
The S&P/TSX composite index fell 112.74 points to close at 22,576.45, with the energy sector bearing the brunt of the decline, dropping 2.5% as West Texas Intermediate crude settled below $73 USD per barrel.
“We’re seeing a significant divergence between Canadian and American markets right now, primarily driven by energy sector performance,” said Michael Henderson, chief investment strategist at Canaccord Wealth Management. “The fundamentals in the oil market have shifted dramatically in the last few weeks with increased supply concerns and softening demand forecasts.”
The energy sector’s struggles follow OPEC+’s recent decision to gradually increase production quotas starting in October, surprising analysts who had expected the cartel to maintain output restrictions through year-end. This decision coincides with reports showing U.S. crude inventories rising for the fourth consecutive week.
Meanwhile, Wall Street continued its bullish run with the S&P 500 gaining 19.26 points to reach 5,487.03, while the Dow Jones industrial average climbed 136.22 points to 39,168.07. The tech-heavy Nasdaq composite added 78.66 points to close at 17,456.75.
The Canadian dollar traded for 73.26 cents US compared with 73.42 cents US on Tuesday, extending its recent weakness against the greenback. The loonie has now declined nearly 2% over the past month as economic data continues to suggest diverging monetary policy paths between Canada and the United States.
“The Bank of Canada’s aggressive rate-cutting cycle is creating significant headwinds for the Canadian dollar,” said Jennifer Morris, currency strategist at RBC Capital Markets. “With another cut likely in July, we’re seeing investors increasingly position for further Canadian dollar weakness.”
Beyond energy stocks, the materials sector also contributed to Toronto’s market decline, falling 1.1% as base metal and gold prices retreated. The August gold contract was down $16.10 at $2,335.30 US an ounce.
Not all sectors suffered equally. Technology stocks on the TSX gained 0.7%, mirroring strength in their U.S. counterparts, while financials held relatively steady with a modest 0.2% advance.
Market analysts suggest the current divergence between Canadian and U.S. markets may persist through summer as economic fundamentals continue to favor American equities.
“Canadian markets remain heavily exposed to resource sectors that are currently facing cyclical headwinds,” Henderson added. “Until we see a stronger outlook for commodities or a significant rotation in market leadership, this performance gap may continue to widen.”
Investors now turn their attention to Friday’s U.S. jobs report, which could provide further clues about the Federal Reserve’s timeline for potential interest rate cuts. Any surprise in employment data could trigger significant volatility across North American markets.
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