Post-open Canada: TSX steadies near highs as a GDP stumble feeds the ‘earlier cut’ story

Canada’s stock market opened with a steady hand on Friday, shrugging off a weaker growth print and keeping the S&P/TSX Composite within touching distance of its recent peak. The index’s early action—little changed to slightly higher—captured the market’s split-screen view: second-quarter output fell more than expected, but the miss sharpened bets that the Bank of Canada could move sooner on rates. In other words, bad news for growth didn’t immediately translate into bad news for prices.
The numbers offered a simple, if uncomfortable, message. Annualized GDP contracted as exports sagged, a sign that global crosswinds are biting just as domestic momentum cools. Yet in a market primed for relief, that weakness translated into higher odds of a near-term policy cut. Rate-sensitive groups, from lenders to consumer cyclicals, found a measure of support on the idea that borrowing costs might come down earlier than previously thought, while tech trailed as investors continued to pick at the timing and profitability of big-ticket AI infrastructure spend.
Breadth was respectable given the setup. Consumer discretionary outpaced the tape on the promise of easier financial conditions, and energy added incremental gains as crude held firm and producers stuck to capital-discipline scripts. The backdrop—a benchmark flirting with records—made the absence of heavier profit-taking notable. It suggests that investors are willing, for now, to let the policy narrative do the heavy lifting while they wait for a clearer read on earnings sensitivity to slower growth.
That puts the Bank of Canada squarely at the center of the next leg. Having kept rates on hold through the spring and summer, policymakers have signaled that the path from here hinges on how quickly inflation cools and how durable labor markets prove. Friday’s GDP shortfall nudged “sooner rather than later” into the base case for many traders, even as they acknowledged that cuts are not a cure-all for export-driven weakness. The line between a supportive pivot and a policy response to more entrenched slowdown remains thin.
Context matters for international allocators. Unlike markets dominated by long-duration tech, the TSX’s heavier mix of financials, energy, and materials can behave differently when the conversation shifts from valuation to cash flows and policy. That composition has helped Canada outperform at times this month, with the index setting fresh milestones as rate-cut hopes firmed. Friday’s post-open tone—subdued but constructive—fit that pattern: a market content to consolidate gains while keeping the easing runway in sight.
The risk, as ever, is that growth slows faster than inflation, creating a tougher earnings trade-off into year-end. But if disinflation persists and policy makers are able to trim rates without reigniting price pressures, the TSX’s balancing act can continue. For now, the takeaway is straightforward: Canada’s growth stumble is real, yet the market is choosing to focus on the relief it may unlock—keeping the index steady near its highs rather than knocking it off them.