The markets took a tumble yesterday as tensions in the Middle East reached new heights. Canadian and American investors watched their portfolios shrink while oil prices surged following Israel’s strikes on Iranian targets. The immediate question for many Canadians: how long will this volatility last, and what does it mean for our economic recovery?
On Bay Street, the S&P/TSX composite index dropped 213.14 points to close at 23,678.82, with energy being the only sector to finish in the green. The pattern was similar south of the border, where all three major U.S. indexes closed lower – the S&P 500 fell 0.9%, the Dow Jones dropped 0.7%, and the Nasdaq composite declined 1.1%.
“Markets hate uncertainty more than anything else,” explains Robyn Davidson, chief market strategist at Meridian Capital. “When geopolitical tensions flare up, investors immediately price in worst-case scenarios, which is exactly what we’re seeing now.”
Oil prices jumped nearly 4% on supply disruption fears, with West Texas Intermediate crude settling at $79.85 USD per barrel. This marks the commodity’s highest level since April, providing a rare bright spot for Canadian energy producers like Suncor and Canadian Natural Resources, whose shares climbed 2.8% and 3.1% respectively.
The Bank of Canada now faces a more complicated path forward. Just last week, Governor Tiff Macklem suggested the central bank might accelerate its rate-cutting timeline if inflation continues to cool. But rising oil prices could put upward pressure on inflation, potentially delaying further cuts.
“The timing couldn’t be more challenging,” says Avery Zhang, senior economist at RBC Capital Markets. “The Bank of Canada was finally seeing consistent inflation improvement, and now this external shock introduces new variables they’ll need to consider before their next policy decision.”
For everyday Canadians, the market reaction has both immediate and potential long-term consequences. Higher oil prices typically translate to increased costs at the pump, which many drivers have already noticed. The national average for regular gasoline climbed to $1.67 per liter yesterday, according to GasWizard data, up from $1.61 just a week ago.
Retirement accounts are also feeling the sting. The volatility has hit technology stocks particularly hard, with Shopify shares falling 3.2% yesterday. The tech-heavy Nasdaq has now declined for three consecutive sessions, putting pressure on growth-oriented portfolios.
“It’s important for investors to maintain perspective,” cautions Priya Malhotra, portfolio manager at Horizon Investments. “Geopolitical events typically cause sharp but relatively short-lived market reactions. The fundamental economic picture in North America remains relatively strong.”
Indeed, Statistics Canada reported yesterday that manufacturing sales rose 0.9% in May, exceeding analysts’ expectations of 0.7%. This suggests the Canadian economy maintains underlying momentum despite external pressures.
Currency markets have also responded to the crisis, with the Canadian dollar strengthening slightly against its U.S. counterpart due to Canada’s status as a net oil exporter. The loonie closed at 73.45 cents USD, up 0.3% from the previous day.
For investors wondering how to position themselves, historical patterns might offer some guidance. Looking at previous Middle East conflicts, markets typically recover within three to six months once the initial shock subsides—provided the situation doesn’t escalate into a broader regional war.
“The key variable now is whether this remains a contained conflict or develops into something more widespread,” notes Zhang. “Markets are pricing in a risk premium, but not yet a worst-case scenario.”
Gold, traditionally seen as a safe-haven asset during geopolitical turmoil, rose 1.2% to $2,451 USD per ounce. Bitcoin, which some proponents have positioned as “digital gold,” actually fell 2.3%, challenging its credentials as a reliable store of value during crises.
Looking ahead, investors should watch several key indicators. First, any signs of diplomatic intervention or de-escalation could quickly reverse yesterday’s losses. Second, oil production and shipping data from the region will indicate whether supply chains face actual disruption or just speculative concerns. Finally, central bank communications will reveal how monetary policymakers plan to navigate this new uncertainty.
For now, financial advisors are urging clients to avoid knee-jerk reactions. “The worst investment decisions are often made during moments of heightened emotion,” says Malhotra. “Unless your financial situation or investment timeline has fundamentally changed, staying the course typically yields better long-term results than trying to time geopolitical events.”
As markets open today, all eyes will be on how the situation develops over the weekend and whether other global powers step in to prevent further escalation. For Canadian investors and consumers alike, the ripple effects of Middle Eastern geopolitics continue to demonstrate how interconnected our economic well-being remains with events happening thousands of kilometers away.
