TSX's Resilience Amid Trade Optimism: A Strategic Buy Opportunity in Industrial and Energy Sectors?

The Toronto Stock Exchange (TSX) has shown remarkable resilience in 2025, navigating a complex web of U.S.-China trade de-escalation and Canada's proactive trade diplomacy. As global markets recalibrate to the temporary easing of tariffs between Washington and Beijing, Canadian investors are reassessing risk appetite and capitalizing on undervalued opportunities in the industrial and energy sectors. This article dissects how trade optimism is reshaping the TSX and identifies strategic entry points for investors seeking to position portfolios for long-term gains.

U.S.-China De-escalation: A Catalyst for Global Risk Appetite

The May 2025 Geneva agreement, which reduced U.S. tariffs on Chinese goods from 145% to 30% and reciprocated with a 10% cut on U.S. imports, injected a wave of optimism into global markets. While the 90-day truce is temporary, it has stabilized supply chains and reduced fears of a full-scale trade war. For the TSX, this de-escalation has had a dual effect: energy stocks have surged on renewed demand for Asian exports, while industrial sectors grapple with lingering U.S. tariffs on steel and aluminum.

The energy sector, in particular, has benefited from the thaw. With oil prices hovering near $70 per barrel and OPEC+ maintaining supply discipline, Canadian producers like Canadian Natural Resources (CNQ.TO) and Suncor Energy (SU.TO) have outperformed. CNQ, for instance, is on track to increase production to 1.55 million barrels of oil equivalent per day in 2025, leveraging its low breakeven costs to offset price volatility. Suncor's recent 1.6% stock gain underscores its strategic positioning in a market where trade tensions have normalized demand for energy exports.

Canada's Trade Diplomacy: A Shield Against Uncertainty

While the U.S.-China truce has eased global tensions, Canada's own trade initiatives have been equally pivotal. The removal of the Canadian Digital Services Tax (DST) in June 2025 and renewed U.S.-Canada trade negotiations have restored investor confidence. The DST, which had threatened to impose a $2 billion payment from U.S. tech firms, was rescinded to prioritize trade stability. This move, coupled with Canada's duty-free exemptions under the USMCA treaty, has insulated energy and industrial sectors from immediate fallout.

However, the industrial sector remains exposed. U.S. tariffs on Canadian aluminum and steel—part of Trump's broader 35% tariff on Canadian goods—have weighed on companies like Canadian Pacific Kansas City (CP.TO) and Canadian National Railway (CNR.TO). Despite this, the completion of the Trans Mountain Pipeline Expansion (TMX) has diversified Canada's export routes, reducing reliance on U.S. markets and mitigating long-term risks. For investors, this infrastructure development represents a critical tailwind for energy stocks, particularly those with Asian and European exposure.

Undervalued Opportunities: Industrial Sector Gems

The industrial sector, though volatile, holds undervalued opportunities. Aecon Group Inc. (ARE.TO), a construction and infrastructure services provider, is trading at 50% below its estimated fair value of CA$40.35. With a CA$1.3 billion contract for Ontario's Darlington New Nuclear Project, Aecon is poised for revenue growth of 7.7% annually. Similarly, Tamarack Valley Energy (TVE.TO), despite facing regulatory penalties, offers a compelling entry point for those willing to navigate near-term risks.

For investors, the key lies in balancing high-growth energy plays with industrial stocks that offer long-term value. Energy majors like CNQ and Suncor are well-positioned to capitalize on stable oil prices and trade optimism, while industrial firms with strong project pipelines—such as Aecon—present asymmetric upside potential.

Strategic Investment Thesis

The TSX's resilience is underpinned by Canada's ability to navigate trade turbulence through diplomacy and infrastructure diversification. While U.S. tariffs remain a near-term headwind for industrial sectors, the energy sector's performance highlights the benefits of strategic positioning. Investors should prioritize:
1. Energy sector leaders with low breakeven costs and diversified export routes (e.g., CNQ, SU).
2. Industrial firms with robust project pipelines and regulatory clarity (e.g., ARE).
3. Hedging against volatility by allocating to dividend-paying stocks in resilient sectors.

Conclusion

The TSX's current landscape reflects a mix of caution and opportunity. While U.S.-China trade tensions remain unresolved, Canada's proactive trade policies and infrastructure investments have created a buffer for its markets. For investors, the industrial and energy sectors offer a compelling case for strategic entry, provided they align with long-term economic trends and risk tolerance. As the July 21 trade deadline approaches, the evolving trade landscape will remain a critical factor shaping the TSX's trajectory—and with it, the fortunes of those who act decisively.