TSX Soars to Record High: Sector Rotation Strategies in Energy and Tech Amid Trade Truce and Inflation Shifts

The Toronto Stock Exchange (TSX) has hit a record high, fueled by a temporary truce in the U.S.-China trade war and easing inflation pressures. Investors now face a pivotal moment to capitalize on sector rotation opportunities in energy and technology—a dynamic dance between cyclical recovery and tech resilience. Here’s how to navigate this landscape.

The Trade Truce: A Catalyst for Market Optimism

The 90-day tariff reduction between the U.S. and China has unleashed a wave of relief. U.S. tariffs on Chinese goods dropped from 145% to 30%, while China cut its retaliatory tariffs from 125% to 10%. This de-escalation has sent global markets surging: Nasdaq futures rose 3.8%, European indices hit multi-year highs, and Asian markets climbed 3%. For Canada, a key trade player, this truce has indirect benefits. Lower energy prices—driven by the removal of Canada’s carbon tax—have eased input costs for industries across borders.

But the truce is fragile. U.S. sanctions on Huawei’s advanced chips and lingering tech tensions underscore that the path to lasting stability remains rocky. Investors must balance optimism with caution: the trade truce is a stopgap, not a solution.

Energy: A Sector Poised for a Cyclical Rebound

Energy stocks, battered by inflation and policy shifts, now face a crossroads. Canadian inflation dropped to 1.7% in April, largely due to a 18.1% year-over-year plunge in gasoline prices after the carbon tax was axed. This has eased pressure on energy consumers but threatens energy producers. However, two factors favor a rebound:

1. Global Trade Recovery: The tariff truce is boosting shipping stocks like Maersk (up 12%) and暗示ing stronger global demand. Energy companies supplying this rebound—such as Canadian Natural Resources (CNQ.TO) and Suncor (SU.TO)—could benefit from rising trade volumes.
2. Core Inflation Risks: While headline inflation is cooling, core metrics like Canada’s CPI-trim (3.1%) and CPI-median (3.2%) remain elevated. This suggests underlying demand for energy, especially as food prices (up 3.8% in Canada) and shelter costs continue to rise.

Action Item: Overweight energy stocks with exposure to diversified markets and low-cost production. Avoid pure-play oil sands firms reliant on high prices; instead, focus on integrated players with renewable portfolios.

Tech: Navigating Trade Tensions and Rate Risks

The tech sector faces a dual challenge: lingering U.S.-China trade conflicts and the specter of rate hikes. The Bank of Canada’s delayed rate cuts—due to stubborn core inflation—have kept borrowing costs elevated, pressuring high-growth tech firms. Yet three trends make selective tech exposure compelling:

1. Trade Truce Gains: Lower tariffs reduce input costs for hardware manufacturers. Canadian firms like Celestica (CLS.TO), which relies on global supply chains, could see margins improve.
2. Defensive Sectors: Cybersecurity and cloud infrastructure—sectors less tied to trade—offer stability. BlackBerry (BB.TO) and Shopify (SHOP.TO) remain pillars of Canadian tech resilience.
3. Interest Rate Environment: While the Bank of Canada holds rates, U.S. 10-year yields have dipped to 4.44%, easing financing costs for tech firms.

Action Item: Prioritize defensive tech names with recurring revenue streams and minimal exposure to China-U.S. trade disputes. Avoid semiconductor firms directly impacted by Huawei sanctions.

Inflation’s Silent Hand: Why Now Is the Time to Act

The inflation data tells a story of divergence: headline metrics are cooling, but core inflation remains sticky. This creates a “Goldilocks” scenario for sector rotation:

• Energy: Benefits from easing inflation but faces headwinds from lower energy prices. A cyclical rebound could align with the truce-driven trade recovery.
• Tech: Less sensitive to energy costs but vulnerable to rate hikes and trade volatility. Selective plays in software and cybersecurity offer shelter.

The Bank of Canada’s June 4 rate decision will be pivotal. If core inflation stays above 3%, rate cuts are delayed—favoring energy’s price-sensitive model over rate-sensitive tech. If rates ease, tech rallies.

Final Call: Rotate Now, but Stay Nimble

The TSX’s record high is no accident—it reflects investor confidence in a post-trade-war world. Energy and tech offer asymmetric upside, but success hinges on timing and selectivity.

• Energy: Buy now on the dip, targeting companies with global exposure and diversified assets.
• Tech: Focus on defensive names and those insulated from trade wars.

The risks are clear: the truce could collapse, inflation could surge anew, or the Canadian dollar could strengthen, hurting exporters. Yet the current landscape—lower tariffs, cooling energy prices, and stable rates—presents a rare window to rotate into these sectors. Act now, but keep one eye on the horizon.

The TSX’s all-time high isn’t just a number—it’s a call to action.