S&P/TSX Plunges Over 200 Points as Debt Worries Send U.S. Markets Tumbling
Canada’s main stock index took its biggest tumble in nearly six weeks on Wednesday, while American markets fell even harder under pressure from rising U.S. Treasury yields amid worries about the U.S. government’s spiralling debt.
The S&P/TSX Composite Index dropped 216.46 points to land at 25,839.17, marking its biggest decline since April 10.
In New York, the Dow Jones industrial average fell by 816.80 points to reach 41,860.44. The S&P 500 index declined by 95.85 points to stand at 5,844.61, whereas the Nasdaq lost 270.07 points to close at 18,872.64.
Earlier in the session, stocks were declining slightly following lukewarm profit outlooks from Target and other retail companies due to uncertainties created by U.S. President Donald Trump’s trade disputes. However, both Canadian and American financial markets experienced a more pronounced drop when the results of the newest 20-year bond sale by the U.S. administration were made public.
The government frequently issues these bonds as a means to raise funds for covering its expenses. During this particular auction, the U.S. government needed to offer a return rate exceeding five percent to entice sufficient investors willing to loan it a sum totaling $16 billion across two decades. This move escalated yields for U.S. Treasury securities yet reduced pricing levels for numerous alternative investment options.
“Once we hit the five percent mark, things start getting somewhat tricky for the equity market,” stated Mike Archibald, vice-president and portfolio manager at AGF Investments Inc., based in Toronto.
Clearly, the market is worried about the ongoing budget deficits in the current U.S. economy.” This worry leads to increased bond yields because “you’ll need to sell more bonds to cover these deficits.
If the US government needs to offer higher interest rates to borrow funds, this can lead to increased borrowing costs for American families and companies as well, affecting mortgage rates, car loans, and credit card charges. This escalation may hinder economic growth. Additionally, elevated returns typically discourage investors from paying premium prices for equities and various investment types.
Yields have increased partly due to fears that the proposed tax cuts in Washington, D.C., might add trillions more to the national debt. There are ongoing worries regarding how significantly Trump’s tariffs may drive up inflation both within the U.S. and internationally, with major corporations attempting to mitigate this impact by distributing costs globally.
“They are currently working on negotiating their tax bill through the House of Representatives, which will incorporate some permanent tax reductions” — leading to increased budget deficits — pointed out Archibald.
On Wednesday, the S&P/TSX Composite Index showed strength in “defensive” categories like materials—which primarily consists of mining firms—and energy, along with gains in utilities and consumer staples. In contrast, all remaining sectors experienced declines.
That’s simply because these top-performing stocks have been consistent for two days straight,” Archibald commented. “This is typically where the market shifts towards as investors seek out more defensively positioned assets.
However, worries about reaching the “peak tariff” have now become a thing of the past, he stated.
The transition from the lower levels has been quite positive… Even though it can be annoying, it’s good to stabilize some of these advancements.
The Toronto-Dominion Bank will launch a series of Canadian banking profit announcements on Thursday, providing insight into both the local economic forecast and the sentiment of consumers and businesses.
Archibald noted that this will provide us with a fairly solid understanding of both the current condition of the Canadian economy and particularly the situation of the Canadian consumer.
The Canadian dollar was trading at 72.21 U.S. cents against 71.76 U.S. cents on Tuesday.
The July crude oil contract fell by 46 cents US to $61.57 per barrel, while the June natural gas contract dropped six cents US to reach $3.37 per mmBtu.
The June gold contract increased by US$28.90 to reach US$3,313.50 per ounce, while the July copper contract rose by two cents to stand at US$4.67 per pound.
— Compiled with information from The Associated Press
The report from The Canadian Press was initially released on May 21, 2025.
Firms featured in this article include: (TSX:GSPTSE, TSX:CADUSD, TSX:TD)
Christopher Reynolds, from The Canadian Press