Canada's main stock index barely budged on Monday, as a rally in energy stocks on higher oil prices was largely canceled out by a decline in materials shares tied to weaker gold. The S&P/TSX Composite Index edged up just 0.03% to 35,313.62 by late morning, even though seven of its 10 major sectors were in positive territory.
The flat headline masks significant rotation beneath the surface. Energy stocks climbed about 2% as crude prices firmed, while materials—home to gold miners and other commodity producers—fell roughly 1.5% as the precious metal eased. Because the TSX is a capitalization-weighted index, moves in large sectors like energy and materials can outweigh broader but smaller gains elsewhere.
Oil Gains on Geopolitical Tensions
The energy sector's strength came as crude oil prices rose amid renewed tensions between the United States and Iran. Markets are focused on the Strait of Hormuz, a critical chokepoint for global oil shipments, where any disruption could threaten supply. This geopolitical risk has pushed oil higher in recent days, benefiting Canadian energy producers that are among the largest components of the TSX.
For context, the Strait of Hormuz sees about 20% of the world's oil pass through it daily. Any escalation in the region tends to boost crude prices and, by extension, energy stocks. Canadian oil companies, with their significant production and export exposure, are particularly sensitive to these moves. For a deeper look at how oil is driving sector performance, see our related coverage: Oil Surge Lifts Energy Stocks as Crude Hits $74, Natural Gas Slips.
Gold Slips on Rate Expectations
On the other side of the ledger, materials stocks struggled as gold prices softened. The pullback in gold reflects growing expectations that the U.S. Federal Reserve will keep interest rates higher for longer. Since gold offers no yield, it becomes less attractive when bond yields rise or when the opportunity cost of holding it increases. Investors have been pricing in a more hawkish Fed stance, which has weighed on the precious metal in recent sessions.
This dynamic is not unique to Canada. Similar cross-currents have been seen in other markets, such as Indian stocks flat as IT gains offset oil and rupee pressure, where commodity-driven sectors often move in opposite directions.
Bank of Canada Decision in Focus
Investors are now looking ahead to the Bank of Canada's interest rate decision on Wednesday. The central bank is widely expected to hold its policy rate steady at 2.25%, as it continues to assess the impact of its previous rate hikes on inflation and economic growth. The decision comes after recent data showed Canada's labor market softening, with Canada's June Jobs Report: Part-Time Gains Mask Manufacturing Weakness highlighting a mixed picture.
A rate hold would signal that the Bank of Canada is comfortable with the current level of monetary restraint, but markets will be watching the accompanying statement for any hints about future moves. If the central bank signals it may cut rates later this year, that could boost rate-sensitive sectors like real estate and utilities. Conversely, a hawkish tone could weigh on stocks broadly.
Air Canada Shares Dip on Labor Deal
In corporate news, Air Canada shares fell 1.4% after the airline announced a tentative labor agreement covering about 11,000 employees. While the deal avoids a potential strike, investors may be concerned about the cost implications of the new contract. Airline stocks are often sensitive to labor costs, which are a major expense for carriers.
What It Means for Investors
For everyday investors, Monday's flat TSX is a reminder that headline index moves can be deceiving. When two large sectors move in opposite directions, the overall index may appear stagnant even as significant rotation occurs underneath. This type of environment can create opportunities for those who look beyond the index level.
Energy stocks may continue to benefit if geopolitical tensions persist, but they also carry risk if oil prices reverse. Gold and materials stocks, meanwhile, could rebound if the Fed signals a more dovish stance. The key takeaway is that diversification across sectors can help smooth out these cross-currents, but it also means that a flat index doesn't necessarily mean nothing is happening.
Investors should also keep an eye on the broader global backdrop. Similar dynamics are playing out in other markets, such as European Stocks Edge Lower as Strait of Hormuz Tensions Boost Oil, Weigh on Tech, where geopolitical risks are driving sector-level divergence. The Bank of Canada's decision on Wednesday will be the next major catalyst for Canadian stocks, and could determine whether the TSX breaks out of its current range.
