TSX Rallies to One-Month High on Resilient U.S. Jobs Data Amid Trade Tensions

The Toronto Stock Exchange (TSX) surged to a one-month high on May 2, 2025, as investors welcomed stronger-than-expected U.S. jobs data, easing fears of an economic slowdown. The S&P/TSX Composite Index closed at 25,031.51, marking a 1% daily gain and a 1.3% weekly rise, its highest level since April 2. The rally was fueled by the U.S. Bureau of Labor Statistics’ report, which showed 177,000 nonfarm payrolls added in April, exceeding forecasts of 138,000, while the unemployment rate held steady at 4.2%.

Key Drivers of the TSX Rally

1. U.S. Labor Market Resilience

The U.S. jobs report provided a critical reassurance to global markets. While wage growth slowed (rising just 0.2% month-on-month to $36.06/hour), the steady job creation in sectors like health care (+51,000) and transportation and warehousing (+29,000) signaled underlying economic strength. Notably, the latter sector’s growth was partly attributed to pre-tariff buying sprees, as companies stockpiled goods ahead of Trump administration policies.

2. Sector-Specific Gains on the TSX

• Industrial Stocks Led the Charge: The industrial sector jumped 2.1%, driven by Canadian National Railway (CNR), which surged 5.7% after reporting quarterly earnings that beat estimates. CNR’s performance underscored investor confidence in North American supply chains, even as U.S. federal job cuts (down 26,000 since January) and trade tensions loomed.

• Tech and Financials Benefited from Recession Easing: Technology stocks rose 1.6%, and financials added 1.2%, as the U.S. jobs data dampened fears of a near-term recession. Analysts noted that the “low firing, low hiring” trend in the U.S. labor market suggested stability rather than fragility.

• Energy Sector Mixed: Despite falling crude oil prices ($58.39/barrel, down 1.6%), energy stocks rose 0.9%, buoyed by Imperial Oil’s (IMO) record Q1 earnings. The company’s refining margins hit a decade high, offsetting broader market concerns about global demand.

3. Trade Policy Uncertainty and Its Silver Linings

While U.S. tariffs remain a drag—evident in Magna International’s (MG) 5.8% drop after announcing cost-cutting measures—the market took solace in signs of de-escalation. China’s reported exemption of $40 billion in U.S. goods from retaliatory tariffs alleviated some trade-related anxiety.

However, risks persist. The U.S. GDP contracted 0.3% in Q1 2025, reflecting tariff-driven inflation and supply chain bottlenecks. Analysts warned that the TSX’s gains could falter if trade tensions reignite or the Federal Reserve delays interest rate cuts.

The Darker Undercurrents

Beneath the surface, the U.S. jobs report highlighted vulnerabilities:
- Long-term unemployment hit pandemic-era highs, with 1.7 million Americans unemployed for 27 weeks or more (23.5% of all unemployed). This suggests a growing divide between those securely employed and those struggling to find work.
- Wage growth slowed to 3.8% annually, down from recent peaks, indicating cooling labor market tightness.

For Canadian investors, these trends matter. A weaker wage cycle could dampen U.S. consumer spending, indirectly hurting Canadian exports. Meanwhile, the materials sector’s 0.4% decline—driven by falling gold prices and weak mining stocks like Alamos Gold—reflected broader commodity market jitters.

Conclusion: TSX’s Rally Masks Lingering Risks

The TSX’s one-month high is a testament to investor optimism in U.S. economic resilience and tentative trade détente. However, the data also reveals cracks: stagnant wage growth, prolonged unemployment, and sector-specific vulnerabilities tied to trade policies.

For now, sectors like industrials and tech are benefiting from a “wait-and-see” stance, but investors should remain cautious. Canadian National Railway’s gains highlight the importance of supply chain resilience, while Magna’s stumble underscores tariff risks. With the Federal Reserve unlikely to cut rates soon and global demand uncertain, the TSX’s next move hinges on whether the U.S. labor market’s underlying strength can offset these headwinds.

As of May 2, the TSX’s 1% weekly gain and the S&P 500’s ninth consecutive daily rise suggest markets are betting on stability. Yet, with the U.S. unemployment rate near historic lows and long-term unemployment rising, the divide between optimism and caution remains as wide as ever.