Hello everyone,
The TSX delivered another impressive performance in February, posting a robust gain of 7.04% for the month. In stark contrast, the major U.S. equity indices faced headwinds, with the market declining by 0.87% over the same period. This outcome diverges from the trend I discussed in my previous editorial, where I noted that U.S. equity markets have historically generated positive average returns in February. Unfortunately, that historical pattern did not hold this year, as U.S. markets contended with a series of challenges that weighed on performance.
The decline in U.S. equity markets during February can be attributed to a series of sector-specific setbacks and heightened geopolitical risks. Among the hardest hit, consumer staples posted the sharpest drop, retreating by 5.38%. Communication services followed closely, falling 5.14%, while the information technology sector declined by 3.91%. Financial services were also negatively affected, decreasing by 3.72%. I believe these downturns were largely driven by escalating tensions in the Middle East, particularly in the wake of coordinated military actions involving the United States and Israel against Iran, followed by retaliatory measures. The resulting uncertainty disproportionately weighed on sectors most sensitive to global risk, such as travel, consumer-focused industries, and technology.
Despite these challenges, several areas of the market exhibited notable resilience and managed to achieve gains over the same period. Utilities, energy, materials, industrials, real estate, consumer staples, and health care sectors collectively contributed positively to overall market performance. Their relative strength underscores the diverse nature of the U.S. equity landscape, where defensive sectors and those tied to essential services or natural resources often provide stability during times of geopolitical upheaval. This mixed performance highlights both the vulnerability and adaptability of the market in response to international developments, as investors recalibrate their strategies amid shifting global dynamics.
Extending the momentum observed across resilient sectors, the S&P/TSX Composite Index (TSX) maintained its impressive trajectory on the home front, with several segments contributing meaningfully to the overall market rally. The materials sector (SPTSX60MS) stood out as the principal catalyst, delivering a return of approximately 19.5% for the month. I believe this strong performance was driven by robust gains in both base metals and battery metals, complemented by a renewed surge in gold prices. This underscores how Canada’s market, anchored by its resource sectors, demonstrated notable strength even as broader global markets grappled with volatility and uncertainty.
Moreover, the consumer discretionary sector (SPTS6CDS) also performed well, posting a return of about 10.9% and reflecting broad-based strength. Similarly, consumer staples (SPTS6CSS) recorded gains of roughly 9.9% during the month. The energy sector (SPTS6NS) navigated some volatility during mid- and late-February but ultimately advanced by approximately 9.1%. Early and mid-month sessions saw energy leading the TSX, largely due to an increased geopolitical premium in oil prices.
Health care (SPTSXCHCS), utilities (SPTSX60US), and industrials (SPTSX60INS) each contributed positively, with gains ranging between 7% and 8.6% over the period. And finally, financials (SPTS6FS) rose by about 2.9%, supported by strong first-quarter earnings from Canada’s largest banks, which bolstered investor confidence and optimism.
But all was not good, as some sectors underperformed or detracted from the overall index movement. The information technology sector (SPTS6IFTS) declined by approximately 6.1%, influenced in part by volatility related to concerns about artificial intelligence which closely aligned with the decline in the U.S. Real estate (SPTSXCRES) was marginally negative, finishing the month down 0.3%.
In the coming weeks, we can expect some volatility as we enter a stage of heightened uncertainty around the geopolitical tension around Iran, Israel and the U.S. In the immediate aftermath of such geopolitical shocks, stock markets often suffer sharp declines as investors react to increased risk and uncertainty about economic and geopolitical stability(https://www.investopedia.com/solving-the-war-puzzle-4780889, https://www.ecb.europa.eu/press/blog/date/2022/html/ecb.blog220928~a4845ecd8c.en.html). This initial market sell-off reflects concerns about potential disruptions to trade, supply chains, and energy prices, particularly if conflicts involve key regions that influence global commodity supplies (https://www.barrons.com/articles/us-iran-war-oil-prices-0b32fd0a).
Historically, while local markets near the conflict zones may face more severe and prolonged negative impacts, global equity markets tend to recover relatively quickly if the conflict remains limited or contained (https://www.lpl.com/research/blog/middle-east-conflict-how-stocks-react-to-geopolitical-shock.html). For example, defense stocks often see gains in such environments due to anticipated increases in military spending, while traditional safe havens such as gold and silver also tend to appreciate as investors seek refuge (https://m.economictimes.com/news/international/us/us-iran-war-news-how-could-the-sp-500-dow-jones-and-nasdaq-react-are-defense-stocks-the-real-winners-or-are-gold-and-silver-the-ultimate-safe-havens-in-the-usiran-conflict/articleshow/128884589.cms, https://www.hennionandwalsh.com/insights/stock-market-reactions-to-war-and-terrorist-attacks-a-historical-analysis/).
Oil prices frequently spike following military attacks, especially if they involve oil-producing regions or critical transit routes like the Strait of Hormuz, which can exacerbate inflation concerns and impact broader market sentiment (https://www.barrons.com/articles/us-iran-war-oil-prices-0b32fd0a, https://m.barrons.com/articles/us-iran-war-oil-prices-0b32fd0a).
However, prolonged escalations tend to weigh more heavily on markets, increasing volatility and sometimes triggering more sustained downturns(https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/how-do-geopolitical-shocks-impact-markets).
Overall, while aggressive military actions initially disrupt markets, the long-term market impact varies based on the scope and duration of the conflict, with many markets showing resilience after the initial shock subsides(https://www.investopedia.com/solving-the-war-puzzle-4780889, https://www.lpl.com/research/blog/middle-east-conflict-how-stocks-react-to-geopolitical-shock.html, https://www.hennionandwalsh.com/insights/stock-market-reactions-to-war-and-terrorist-attacks-a-historical-analysis/).
Aside from the noted above, financial markets in the month of March have historically shown mixed performance with notable volatility. For instance, the S&P 500 has averaged a modest gain around 1.0% during March, with a gain frequency of approximately 64%, indicating that markets often trend positive but with some variability(https://equityclock.com/2026/02/27/stock-market-outlook-for-march-2-2026/). However, recent years have seen some significant downturns in March; for example, in March 2025, the S&P 500 fell about 5.6%, marking one of its worst monthly returns in recent history due to stretched valuations and concentrated leadership driving volatility (https://www.fiducientadvisors.com/research/march-market-review-trumpenomics, https://www.raymondjames.com/thewiseinvestorgroup/insights/words-from-the-wise/2025/04/08/march-2025-market-update).
Additionally, international markets have sometimes moved differently from the U.S. market within the same period, as seen in a recap where while the U.S. market dropped significantly, international stocks posted modest gains (https://www.empower.com/the-currency/money/2025-march-market-recap).
In conclusion, March could be a challenging month for investors, marked by fluctuating market performance, external shocks, and a need for careful risk management. While historical trends show both resilience and vulnerability, the best strategy often involves diversification and a steady focus on long-term objectives, especially amid uncertainty. And as we reflect on the "Ides of March", remember: in investing, it's wise to watch your portfolio as closely as Caesar should have watched his Senate, beware of unexpected downturns, but don’t be afraid to seize new opportunities (just maybe leave the togas at home).
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