Strategists see the index easing to 36,600 by year-end, then climbing to 40,000 in 2027
The S&P/TSX Composite Index shed 143.98 points, or 0.4 percent, to close at 36,813.65 on Wednesday, one session after a record closing high.
Metal mining shares gave back recent gains and investors weighed an escalation in trade tensions that could damage prospects for the domestic economy, Reuters reported.
Angelo Kourkafas, senior investment strategist at Edward Jones, told The Canadian Press that portfolios should stay anchored to company performance.
Trade headlines could create volatility, he said, but investors should remain focused on earnings and fundamentals.
He pointed to Canadian GDP figures due later in the week and to earnings that continue to move higher.
Statistics Canada will report gross domestic product figures for June and for the second quarter as a whole on Friday, according to The Canadian Press.
The Canadian Press reported that US President Donald Trump imposed 50 percent tariffs on about $28bn worth of Canadian products over the weekend as trade talks collapsed.
Reuters reported that Trump declared the 50 percent levy on Monday, applying it to vehicles, auto parts, and trucks from Canada effective January 1, doubling the 25 percent tariffs already in place.
Ottawa answered with dollar-for-dollar retaliatory tariffs on American goods taking effect September 8, alongside a $7.5bn tariff-relief package for affected businesses and workers, The Canadian Press reported.
Reuters put the retaliation at $27.6bn, or US$19.9bn, in United States goods.
Kourkafas told The Canadian Press that a trade war produces no winner, with implications for the economies and sectors of both countries.
He described the escalation as a manageable headwind for Canada overall, while heavily targeted industries take a larger hit.
Michael Sprung, president at Treegrove Investment Management, told Reuters the index composition has cushioned the blow.
Much of the TSX is differentiated from the underlying economy, he said, and sectors including aluminum, steel, forest products, and automotive make up a small share of the market.
National Bank of Canada reported loan loss provisions higher than analysts had estimated even as it beat quarterly profit estimates, Reuters reported, with its shares losing 4.2 percent.
Canada's five largest bank stocks trade at an average of 15 times forward earnings, the most expensive since 2010.
The financials sector accounts for 34 percent of the TSX's weighting and has rallied nearly 20 percent since the start of the year, while energy has added 45 percent and the materials group has gained 26 percent.
A Reuters poll of 20 equity strategists and portfolio managers, conducted August 12 to 26, produced a median forecast for the index to dip 1.0 percent to 36,600 by the end of 2026, above the 35,300 expected in a May poll.
The end-2027 forecast stands at 40,000, an 8.2 percent gain, against a previous prediction of 38,000.
Lorne Steinberg, president at Lorne Steinberg Wealth Management, told Reuters he expects the TSX to pause while earnings catch up.
Bank stock valuations are "stretched," he said, and the sector may be flat over the next 12 to 18 months.
Eleven of 14 analysts answering a separate question said a correction was likely or very likely over the coming three months, Reuters reported.
Philip Petursson, chief investment strategist at IG Wealth Management, told Reuters that several factors point to a high probability of a correction.
He listed higher than average equity valuations, higher longer-term US bond yields that will pressure those valuations further, weak seasonality, and the US midterms.
