TSX Rallies on Trump’s Powell Backtrack: A Fragile Rebound or New Stability?

The Toronto Stock Exchange (TSX) surged on April 23, 2025, as U.S. President Donald Trump alleviated fears of political interference in Federal Reserve policy. The S&P/TSX Composite Index (^GSPTSE) climbed 1.2% to close at 24,305.98, its highest level since April 3, 2025, after Trump stated he had “no intention” of firing Fed Chair Jerome Powell. This reversal from his earlier threats of dismissal calmed markets, though lingering risks—from trade wars to geopolitical volatility—suggest this rebound may be as fragile as the policies that triggered it.

The Catalyst: Trump’s Backtrack on Powell

The rally followed Trump’s clarification that he would not remove Powell, easing concerns that the Fed’s independence was under threat. Earlier in the week, Trump’s social media attacks on Powell—calling him a “major loser”—had sparked a 0.6% dip in the TSX on April 22. Markets now appear to have priced in the risk of Fed destabilization, but the April 23 reassurance allowed investors to refocus on fundamentals.

Sector Performance: Winners and Losers

The TSX’s rise was uneven, reflecting sector-specific dynamics:
1. Technology (+2.1%): Led by Shopify Inc. (+4.9%), which rebounded after a revived class-action lawsuit and positive investor sentiment.
2. Energy (+2.1%): Benefited from a 2% oil price jump to $64.31/barrel, driven by U.S. sanctions on Iranian energy infrastructure.
3. Financials (+2%): Gained as geopolitical uncertainty eased, with banks and insurers seeing reduced systemic risk.

The materials sector bucked the trend, falling 1% as gold prices retreated from record highs. This decline mirrored reduced demand for safe-haven assets amid improved trade sentiment.

The Trade Factor: China and the Dollar

Trump’s hints of potential tariff reductions on Chinese goods post-deal also buoyed markets. Treasury Secretary Scott Bessent noted that U.S.-China trade tensions might “cool down,” though he cautioned that tariffs would “not drop to zero.” This tempered optimism contrasted with the prior week’s fears of a full-blown trade war, which had sent the TSX lower.

The Canadian dollar edged higher to 72.39 cents U.S., reflecting reduced fears of dollar depreciation—a key concern for exporters. However, the TSX’s resilience also highlights its divergence from broader U.S. markets, which remain mired in uncertainty. The S&P 500, for instance, has declined 11.6% year-to-date compared to the TSX’s 2.4% dip.

Risks Ahead: Trump’s Whims and Legal Battles

While the TSX’s rebound is welcome, its durability hinges on factors beyond Canada’s control. Key risks include:
1. Trump’s Unpredictability: His history of erratic trade and policy decisions—exemplified by the April 21 social media attacks—means markets remain vulnerable to sudden shifts.
2. Legal Uncertainty: Legal experts debate whether Trump could legally remove Powell before his term expires in 2026. A Supreme Court case on executive power could redefine the Fed’s independence, spooking markets.
3. Trade Tensions: The World Trade Organization warns that Trump’s tariffs risk a global recession (45% probability), which would hit Canada’s export-reliant economy hard.

Conclusion: A Cautionary Optimism

The TSX’s April 23 rally reflects a “risk-on” shift as investors embraced reduced immediate threats to the Fed and trade. However, the gains are precarious. The TSX’s 1.2% jump contrasts starkly with the S&P 500’s 2.5% decline year-to-date—a divergence fueled by Canada’s resource sectors and relative resilience to U.S. policy whiplash.

Yet, the path ahead is fraught. highlights the broader market’s volatility: its 7% premarket surge (driven by better-than-expected profits and Musk’s reduced Washington involvement) underscored how even positive news is overshadowed by systemic risks. For the TSX to sustain its gains, Trump must avoid reigniting trade wars or Fed battles. Until then, investors are left holding their breath—a posture that defines markets in 2025.