Canadian and U.S. stock markets experienced a decline on Friday due to concerns surrounding the impact of the U.S.-Iran conflict on interest rates. Dustin Reid, the vice-president and chief strategist for fixed income at Mackenzie Investments, noted that the markets displayed risk-averse behavior in response to elevated energy prices and inflation risks. This shift in sentiment has led to speculation about potential central bank rate hikes, affecting various asset classes, including equities.
The S&P/TSX composite index dropped by 537.57 points to 31,317.41, while the Dow Jones industrial average in New York fell by 443.96 points to 45,577.47. Additionally, the S&P 500 index decreased by 100.01 points to 6,506.48, and the Nasdaq composite saw a decline of 443.08 points to 21,647.61.
Market participants have significantly reduced their expectations of a U.S. Federal Reserve interest rate cut this year, with some now considering the possibility of rate hikes in 2026, a scenario previously deemed unlikely. Despite calls from U.S. President Donald Trump for lower rates to stimulate the economy and investment, concerns persist about the potential exacerbation of inflation.
The May crude oil contract rose by $2.68 to reach $98.23 per barrel, reflecting the ongoing volatility in oil prices amid uncertainties surrounding the duration and impact of the conflict on oil and gas production in the Persian Gulf region.
Amidst these developments, the Canadian dollar remained relatively stable, trading at 72.90 cents US compared to 72.84 cents US on Thursday. Reid highlighted the Canadian dollar’s resilience in the face of market turbulence, attributing its performance to safe-haven flows that have supported its strength compared to the U.S. dollar.
Historically, stock markets have shown resilience following geopolitical conflicts, provided that oil prices do not remain elevated for an extended period. In the Canadian stock market, most sectors experienced declines, with basic materials weighing heavily on the market, while consumer non-cyclicals was the sole sector to record gains.