If you only looked at the TSX this week, it would be easy to think not much happened. The S&P/TSX Composite finished Friday at 35,800.89 and slipped just 0.02% over the full week, but underneath that quiet headline Canadian investors were dealing with softer domestic data, higher bond yields, a weaker dollar and volatile oil. To me, those underlying moves mattered far more than the index itself. Heading into Monday, I am watching whether those pressures start changing the outlook for Canadian businesses and interest rates.
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The Bank of Canada’s Problem Is Getting More Complicated
The biggest Canadian development this week came from Bank of Canada Governor Tiff Macklem rather than from a rate announcement. Macklem warned that renewed U.S. tariffs could push Canada’s fourth-quarter growth below 1%, down from earlier expectations around 1.5%, while high energy prices could keep inflation elevated. The Bank’s policy rate remains at 2.25%, and inflation is still above its 2% target. That leaves policymakers balancing weaker growth against price pressures that have not fully disappeared.
Canadian retail data added weight to the softer-growth side of that argument. Statistics Canada reported that July retail sales fell 0.7%, while sales measured in volume terms declined 1.1%, suggesting consumers bought less after adjusting for prices. There was a more encouraging preliminary estimate for August, so I would not take one weak month as proof that Canadian consumers are suddenly falling apart. From a long-term investor’s perspective, I think the lesson is to avoid building an investment thesis around one confident interest-rate prediction and instead focus on businesses that can handle more than one possible outcome.
A Flat TSX Hid a Much Bigger Move in Bonds
The TSX finished Friday at 35,800.89 after gaining 0.3% during the session, leaving the index almost perfectly flat for the week. Financial shares helped on Friday, while energy and technology finished lower, showing again how little an index-level number can tell us about what is happening underneath. The more interesting move happened in bonds, where Canada’s 10-year government yield briefly rose above 4% on Thursday, its highest level since October 2023. That matters because higher bond yields increase borrowing costs and give investors a more competitive alternative to stocks.
I think that puts more pressure on companies whose valuations depend on cheap financing or profits far into the future. REITs, utilities, growth companies and heavily indebted businesses can all react differently from banks or cash-rich companies when yields rise, so saying “higher rates are bad for stocks” is too simple. I would rather look at debt levels, refinancing needs and free cash flow than make a blanket decision about an entire sector. In an environment like this, the strength of the underlying business matters more to me than trying to trade every move in the bond market.
The Loonie and Oil Are Pulling Canada in Different Directions
The Canadian dollar had another difficult week, falling about 1.2% against the U.S. dollar and ending Friday near US$0.7066. That marked a third straight weekly decline, with the gap between Canadian and U.S. two-year bond yields widening to roughly 153 basis points. For Canadians holding unhedged U.S. investments, a weaker loonie can increase the Canadian-dollar value of those holdings, while Canadian exporters earning revenue in U.S. dollars can also benefit. The downside is that imported goods, equipment and other U.S.-priced inputs become more expensive, which can add to inflation pressure.
Oil is creating a similar two-sided effect. Brent crude remained above US$100 late in the week even as hopes for progress between the United States and Iran pushed prices lower, while supply risks in the Middle East kept traders cautious. High oil prices can support Canadian producers through stronger cash flow, dividends and share buybacks, which matters in an energy-heavy index like the TSX. At the same time, expensive fuel raises costs across transportation, manufacturing and household budgets and can make the Bank of Canada’s inflation problem more difficult.
That is why I do not view high oil as simply bullish for Canada. It can be excellent for a well-run producer while creating real problems for another company that consumes large amounts of fuel or relies on imported goods. The same is true of the weaker dollar, which helps some businesses and hurts others. What matters to me is understanding how each company is exposed rather than trying to turn one macroeconomic move into a judgment on the entire Canadian market.
U.S. Markets Are Still Showing Surprising Resilience
U.S. markets remained strong despite pressure from bond yields, with the Nasdaq reaching fresh highs earlier in the week as enthusiasm around AI and semiconductor spending returned. At the same time, long-term U.S. Treasury yields moved to levels not seen in many years as investors worried about inflation and Federal Reserve policy. Normally that combination would pressure highly valued growth stocks, yet earnings expectations and AI-related spending have continued to support the market. I would not take that as proof that valuations no longer matter, but it shows why strong businesses can keep performing through an uncomfortable backdrop.
My Take
The TSX being almost perfectly flat is probably the least interesting part of this week. Canada is dealing with softer economic signals, inflation that remains above target, high energy prices, a weaker dollar and bond yields that are demanding more attention, but none of those developments gives me an obvious reason to rebuild a long-term portfolio. I am not suddenly loading up on energy because oil is above US$100, and I am not abandoning growth companies because yields moved higher. What I am doing is paying closer attention to debt, cash flow, pricing power and whether the companies I own can continue executing if economic conditions become more difficult.
I also think this is a good example of why diversification matters. The TSX, U.S. technology stocks, Canadian energy producers and rate-sensitive businesses are responding differently to the same global environment. Having exposure to different businesses means I do not need one economic outcome to be right for the whole portfolio. That is more comfortable to me than trying to predict which central bank, commodity or currency makes the next big move.
What I’m Watching This Week
Canadian GDP is first on my list, with Statistics Canada scheduled to release July GDP by industry on Tuesday, September 29. Its preliminary estimate suggested the economy was essentially unchanged in July, with gains in areas such as real estate and professional services offset by weakness in retail and manufacturing. After Macklem’s warning about the growth outlook, the official number will give investors another useful look at how much momentum the Canadian economy actually has.
On Wednesday, September 30, the U.S. Bureau of Economic Analysis is scheduled to release August personal income and spending data, including the PCE price index watched closely by the Federal Reserve. July PCE inflation was 3.7% year over year, so another firm reading could reinforce expectations that U.S. rates will remain restrictive. That would matter for bond yields, stock valuations and the Canadian dollar because the interest-rate gap between Canada and the United States is already wide.
Friday, October 2 brings the September U.S. employment report, another release that can quickly change interest-rate expectations. Investors will be watching job creation, unemployment and wage growth for signs that the U.S. economy is either cooling or remaining resilient under higher rates. I am less interested in predicting the immediate market reaction than in seeing whether the labour data supports or challenges the current higher-rate narrative.
Oil and Middle East developments are the unscheduled item I will be watching throughout the week. Diplomatic progress could remove some of the supply-risk premium keeping crude elevated, while renewed attacks or shipping disruptions could push concerns in the other direction. For Canadian investors, oil now connects directly to energy-company cash flow, inflation expectations, interest rates and the loonie, which makes it too important to ignore.
Final Thoughts
Heading into Monday, I do not think Canadian investors need a dramatic prediction about where markets go next. The more useful takeaway is that slower Canadian growth, elevated oil prices, higher bond yields and a weaker loonie are affecting different companies in very different ways, which puts more emphasis on business quality and balance-sheet strength. This week’s GDP, U.S. inflation and employment data will add more information, but none of them should be treated as a standalone signal to change a long-term portfolio. I am more interested in what those numbers tell me about the environment the businesses I own will have to operate in.
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