What's inside
TSX Tumbles on Fed Fears and Tech Selloff
U.S. Shutdown Ends, Boosting Canadian Markets
PBO Report Raises Red Flags on Federal Finances
What happened: The S&P/TSX Composite Index experienced its largest single-day drop in over seven months, falling 1.9%. The decline was caused by a spillover from the U.S., where a selloff in technology stocks, combined with hawkish comments from Federal Reserve officials, spooked investors and dampened hopes for a December interest rate cut.
Why it matters: This event impacts several key Canadian sectors. The prospect of "higher for longer" interest rates increases borrowing costs, which can slow economic growth. Rate-sensitive sectors like utilities and real estate may become less attractive to investors compared to the safer returns on bonds. A stronger U.S. dollar, which often follows a hawkish Fed, puts downward pressure on commodity prices, directly affecting Canada's large materials and mining sector.
What happened: The 43-day U.S. government shutdown, the longest in its history, concluded after Congress passed a stopgap funding bill. This temporary measure funds the government through January 30, 2026, and provides back pay to federal workers, but it postpones negotiations on a full-year budget.
Why it matters: The resolution provided immediate relief to the Canadian economy and stock market. The TSX rallied strongly as the deal removed a major source of uncertainty for investors. For Canadian businesses, the reopening of U.S. federal agencies means an end to costly backlogs and delays for cross-border inspections and permits. The move is also expected to help restore U.S. consumer spending, which is vital for Canadian exporters in sectors like auto parts and consumer goods.
What happened: The Parliamentary Budget Officer (PBO) released a critical report on the federal government's budget. The PBO raised concerns about the government classifying $94 billion in operational expenses, such as tax credits, as capital investment. The report also concluded there is a low probability that the government will meet its key target of a declining deficit-to-GDP ratio but expects it will remain stable.
Why it matters: The report signals potential long-term risks for the broader Canadian economy. An undisciplined fiscal approach could eventually lead to higher inflation or interest rates, creating headwinds for the market. This directly affects industries sensitive to borrowing costs, including financials, real estate, and utilities. The PBO's findings could also dampen overall investor confidence in the Canadian market, as it raises questions about the country's long-term economic stability.