Traders price a 95% chance the Bank of Canada holds at 2.25% on Wednesday
The S&P/TSX composite index shed 444.75 points on Tuesday to close at 35,825.73, with basic materials and technology stocks weighing on the index while energy shares provided a lift.
The Canadian Press reported the drop came as US forces struck targets in Iran and crude prices climbed.
Ainsley Mackie, portfolio manager at Verecan Capital Management, told The Canadian Press that markets remain resilient despite ongoing geopolitical tensions.
Mackie said the TSX has posted five months of consecutive gains and is up around 14 percent for 2026, and that technology stocks have been influential for the direction of markets generally.
"We're seeing on a day-to-day basis, flows are going between technology and other sectors, and today was one of those days when it was flowing out of technology, and it was flowing into energy," Mackie said in remarks carried by the same outlet.
The Bank of Canada delivers its interest rate announcement on Wednesday.
The central bank has held its benchmark rate at 2.25 percent for nearly a year, and financial market odds of a seventh straight hold stood at about 95 percent as of Tuesday afternoon, The Canadian Press citing LSEG Data & Analytics.
Mackie told the publication that tariffs remain a risk and would carry a human and economic cost if factories close or jobs go.
From an investment view, he treats them as "more of a headline risk rather than a systematic risk" for the Canadian economy and the banking system.
The Canadian dollar traded for 71.96 cents US against 72.12 cents US on Monday, according to the same outlet, which put the December gold contract down US$85.10 at US$4,396.40 an ounce.
The October crude oil contract rose US$4.46 to US$90.22 per barrel, The Canadian Press reported.
CNBC put the gain in US oil at 5.2 percent and Brent futures up 4.6 percent to US$94.65, the site citing US Central Command's statement that American forces were attacking Islamic Revolutionary Guard Corps targets in Iran.
AP News reported it was US oil's first close above US$90 in more than a month, and that the war has essentially shut down the Strait of Hormuz, through which 20 percent of the world's oil is typically shipped.
In New York, the Dow Jones Industrial Average dropped 419.02 points to 52,766.88, the S&P 500 lost 54.67 points to 7,631.47, and the Nasdaq composite fell 271.12 points to 26,099.77, per The Canadian Press.
Energy led the 11 major S&P 500 sectors while consumer discretionary suffered the largest percentage loss, according to Reuters.
AP News reported the yield on the 10-year US Treasury rose to 4.79 percent from 4.75 percent late Monday, having been as low as 4.20 percent at the start of 2026.
The two-year yield, which closely tracks expectations for US Federal Reserve moves on interest rates, climbed to 4.39 percent from 4.34 percent, the outlet said, adding that US debt surpassed US$40tn two weeks ago.
Markets are pricing a 68.2 percent likelihood of a 25-basis-point US Federal Reserve hike at the end of its September meeting, up from 39.6 percent a week ago, Reuters citing CME's FedWatch tool.
Ross Mayfield, investment strategy analyst at Baird, told CNBC that the stock market will "struggle to digest big and kind of volatile moves in the bond market."
Mayfield expects the pattern to hold in the near and long term.
