Canadian Stock Index Drops From Three-Week High Over Rate Hike Worries

Canada's main stock index dropped on Monday after touching a three-week high at the end of last week. The S&P/TSX Composite Index fell by 247.92 points, which is a 0.7 percent drop, to close at 35,928.63. The downturn came as investors worried that a potential interest rate hike by the central bank could slow down the domestic economy further.

Market Sectors

Financial shares dropped 0.6 percent, and the materials sector that includes metal miners fell 1.1 percent. Industrial stocks went down 1.1 percent due to losses in railroad shares and Air Canada. Air Canada shares alone fell 3.2 percent after a rating cut from brokerage Jefferies. Interest rate sensitive sectors also took heavy hits, with real estate falling 1.3 percent and utilities dropping 1.4 percent. Energy was the only major sector to finish higher, gaining 0.5 percent as US crude oil futures settled up 2.2 percent at $103.66 a barrel.

Inflation And Rates

Canada's annual inflation rate rose to 3.1 percent in September, which was less than expected. Even so, investors raised their bets on a Bank of Canada rate hike next week. This followed a statement from Bank of Canada Governor Tiff Macklem on Saturday warning of an increased risk that inflation could broaden and become more persistent. Allan Small, a senior investment adviser at the Allan Small Financial Group with iA Private Wealth, noted that a hike would slow down an economy already moving at a snail's pace. Meanwhile, the country lost 41,200 jobs in the first nine months of the year, compared to a gain of 211,300 in the same period of 2025. Canada's 10-year yield also climbed 12.4 basis points to reach 3.953 percent.

Context

Central banks often raise interest rates to cool down rising prices, but higher borrowing costs can also slow down business growth and job creation. Commodity-heavy markets like Canada are particularly sensitive to shifts in global oil prices and currency values. Monitoring these economic indicators helps investors understand how monetary policy affects everyday market movements.