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Canadian Markets Gain Momentum as Investors Turn to Lower U.S. Rates

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  Published in Stocks and Investing on Tuesday, November 25th 2025 at 17:41 GMT by Toronto Star

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Canadian Markets Gain Momentum as Investors Turn to the Prospect of Lower U.S. Interest Rates

In a week that saw global equities climb, the Toronto Stock Exchange’s benchmark TSX Composite gained nearly 0.9 %, while the U.S. S&P 500 posted a similar uptick. The rally was underpinned by renewed optimism that the Federal Reserve (Fed) will ease its monetary policy later in the year, a development that is expected to benefit Canadian equities across a broad spectrum of sectors.

1. The Fed’s “Pause” and the Signal of Rate Cuts

The core catalyst for the market rally was the latest data from the U.S. Department of Labor, which showed that unemployment fell to 4.4 % in October, and the inflation rate for the same month eased to 4.6 %. The figures fell short of the Fed’s “high‑end” forecast and reinforced the narrative that the central bank is ready to pause its tightening cycle.

Fed officials have already indicated that a rate hike in June was likely, but now the emphasis has shifted to a possible cut in late 2025. According to a Bloomberg interview with Fed Governor Christopher Waller, “We are watching the data closely, and we expect that a pause could turn into a reduction in the near future.” The prospect of a lower U.S. policy rate has spurred a shift in risk appetite, lifting the mood in the equity markets.

2. Impact on the TSX and Sectors

Financials — The most pronounced beneficiary of the Fed’s outlook was the banking sector. The TSX’s “Financials” sector index rose 1.4 %, buoyed by banks’ stronger earnings outlook in a tighter monetary environment. As the U.S. dollar weakens relative to the Canadian dollar, Canadian banks’ export‑related income is likely to increase, a factor that analysts highlighted as a key upside driver.

Technology and Biotech — A softer U.S. rate regime is expected to lift valuations for growth‑heavy companies. The TSX’s “Technology” and “Biotechnology” sub‑indices climbed 0.9 % and 1.1 % respectively. A Reuters piece cited a recent earnings report from Shopify, which saw a 28 % rise in revenue, further supporting the upward trajectory of the sector.

Resources — Canadian resource stocks, particularly in mining and energy, also gained traction. Gold and copper producers reported better margins as commodity prices rebounded to pre‑pandemic levels. The TSX “Resources” sector increased 1.0 %. Analysts noted that a stronger Canadian dollar, driven by higher bond yields, could lift the revenue base for these firms.

3. Currency and Bond Dynamics

The Canadian dollar (CAD) strengthened by roughly 0.5 % against the U.S. dollar (USD), reflecting the higher relative yields in Canada. A link in the original article directed readers to the Bank of Canada’s daily rate decision, which confirmed that the overnight rate would stay at 4.25 %. The Bank of Canada’s stance was that the Canadian economy remains on a solid growth trajectory, with inflation pressures easing.

U.S. Treasury yields fell 4 basis points on the day, with the 10‑year yield sliding to 3.10 %. The lower yields are a direct consequence of the market’s expectation for Fed rate cuts, and they are projected to lift equity valuations. The article referenced a CNBC piece that tracked the “FedWatch” tool, noting that the probability of a 25‑basis‑point cut in the fourth quarter of 2025 increased to 35 % from 25 % the previous week.

4. Global Context and Investor Sentiment

Beyond the U.S. and Canadian data, global investors were reassured by positive European and Asian market activity. The Nikkei Index saw a 0.8 % rise, while Shanghai’s SSE Composite posted a 1.2 % gain. The article cited a brief commentary from the International Monetary Fund (IMF) that projected global growth to expand to 3.4 % in 2025, indicating a favorable backdrop for corporate earnings.

The article also highlighted the role of sentiment in driving the rally. A survey conducted by Moody’s Analytics indicated that 70 % of investors now see Canada as a “higher risk, higher reward” destination, with 55 % of respondents citing the potential for Fed cuts as the primary reason for their optimistic outlook.

5. Forward‑Looking Risks

Despite the positive momentum, the article cautioned that risks remain. If the U.S. inflation were to climb unexpectedly, the Fed could pause or even resume hikes, which would likely dampen the Canadian equity markets. Additionally, the commodity price volatility could impact the resource sector, while a sudden deterioration in U.S. corporate earnings could lead to a broader risk‑off scenario.

A link to the Reuters “Fed Decision Tracker” was provided for readers who wished to monitor the latest developments in real time. The piece concluded by stressing the importance of maintaining a diversified portfolio and paying close attention to both macro‑economic indicators and corporate earnings data.

6. Takeaway

Canadian markets have enjoyed a surge driven by optimism surrounding the U.S. Federal Reserve’s potential policy easing. This optimism has lifted key sectors—especially financials, technology, and resources—while the strengthening Canadian dollar and lower U.S. Treasury yields have created a favorable environment for equity valuations. While the outlook remains positive, investors are advised to remain vigilant about inflation dynamics and corporate earnings, which could shift the market sentiment more quickly than anticipated.

In short, the hope for lower U.S. interest rates has created a temporary but meaningful boost for Canadian equities, a development that is likely to continue as long as the macro‑economic data and central‑bank signals remain supportive.