Canada's S&P/TSX Composite Index edged higher for a third consecutive session on Tuesday, as gains in utilities and telecommunications stocks offset weakness elsewhere. The advance came as investors digested a fresh batch of economic data, including a wider-than-expected trade surplus and a slowdown in a key business activity gauge.
Trade surplus widens, but tariff worries linger
Statistics Canada reported that the country's trade surplus widened to C$4.2 billion in August, up from the previous month. The improvement was driven largely by stronger exports to the United States, Canada's largest trading partner. The data, which was covered in a separate report, suggests that Canadian exporters are still finding buyers south of the border despite ongoing tariff threats.
However, the broader picture remains clouded by uncertainty. As we noted in a recent analysis, Canada's next trade and jobs data may reveal tariff damage if the current trade tensions persist. Investors are watching closely for any signs that the recent strength in exports is starting to fade.
Ivey PMI cools, but still points to expansion
Separately, the Ivey Purchasing Managers' Index (PMI) fell to 58.2 in August, down from the previous reading. The PMI is a monthly survey of purchasing managers across Canada, and a reading above 50 indicates that business activity is expanding. While the latest figure shows a slowdown from the prior month, it still signals that the economy is growing, albeit at a more moderate pace.
The cooling in the PMI is consistent with other recent data showing that Canada's services sector has been under pressure. In fact, Canada's services sector has shrunk for four straight months as input costs continue to climb. That divergence—strong trade numbers but softer domestic activity—paints a mixed picture for the economy.
Utilities and telecom lead the way
On the stock market, utilities and telecom companies were the standout performers on Tuesday. These sectors are often seen as defensive plays, meaning they tend to hold up well when investors are cautious about the economic outlook. Their gains helped lift the broader index, even as other sectors, such as energy and materials, struggled.
The strength in utilities comes amid a wave of consolidation in the sector. Earlier this year, Emera and Canadian Utilities agreed to a $72 billion merger, a deal that could reshape the industry. Such mergers often draw attention to the sector and can boost sentiment among investors.
What it means for investors
For everyday investors, the TSX's three-day winning streak is a welcome sign, but it's important to keep it in perspective. The index is still navigating a complex environment of trade tensions, slowing global growth, and shifting central bank policies.
The fact that defensive sectors like utilities and telecom are leading suggests that investors are favoring stability over growth. That's a common pattern when there's uncertainty about the economy. It doesn't necessarily mean a downturn is coming, but it does indicate that market participants are being cautious.
For those with diversified portfolios, the recent moves underscore the value of holding a mix of sectors. While tech and energy stocks often grab headlines, steady performers like utilities and telecom can provide a cushion during volatile periods.
Looking ahead
Investors will be watching several key data points in the coming weeks, including the next round of trade and employment figures. As we've noted, these numbers could provide clues about the impact of tariffs on the Canadian economy.
Commodity prices are also on the radar. A recent report showed that commodity prices ticked up 0.6% in September, which could provide some support for Canada's resource-heavy index. However, the outlook for oil and metals remains tied to global demand and trade policy.
In the meantime, the TSX's steady climb is a reminder that markets can find reasons to move higher even when the headlines are mixed. For long-term investors, the key is to stay focused on their goals and avoid getting caught up in short-term swings.
