TSX composite falls on Iran tensions—but a rebound may be near

Canadian stocks retreated this week as geopolitical risks soared.

The TSX Composite Index retreated from the year-to-date high of $34,528 this month to $33,600.

Canadian stocks retreated amid the war in Iran 

The TSX Composite Index pulled back this week as global stocks retreated following the start of the war in Iran and the volatility in the Middle East. 

It has retreated by over 2.6% from its highest point this year, mirroring the performance of other top indices like the S&P 500 and Nasdaq 100.

The ongoing war is risky for the stock market for three main reasons.

First, it raises concerns about supply chain disruptions, which will affect many companies, especially those in the manufacturing sector.

Second, there is a risk that it will trigger inflation because of the ongoing energy prices surge.

Brent, WTI, and Canadian benchmarks have all soared to the highest levels in months. 

Analysts believe that a prolonged war will have a major impact on inflation as oil prices may surge to $100 and above.

Such a move would likely push the Bank of Canada to embrace a more hawkish tone and possibly hike interest rates.

The only beneficiaries in this instance are oil and gas companies. A closer look at TSX Index’s constituents shows that companies in the industry were among the top gainers. 

Paramount Resources' stock jumped by 15% this week, while International Petroleum, Vermillion Energy, Tamarack Valley Energy, and Baytex Energy were the top gainers.

The war in Iran also affects the stock market by leading to high volatility as investors embrace a risk-off sentiment.

On the positive side, there are signs that this war will not go on for years.

Instead, there is a likelihood that Trump will declare victory soon, citing the killing of Ayatollah Ali Khamenei and the top leaders.

He will also point to the destruction of Iran’s military, including its navy.

An end to the war will be a good thing for the TSX Index and other top global indices as the risks highlighted above will be eliminated.

The TSX Index also retreated as gold and silver prices remained under pressure this week.

Gold initially jumped to $5,425 and then retreated to $5,120, while silver fell from $96 to $85. Other metals also retreated as concerns about demand remained.

As a result, the top laggards were companies in the mining industry like Capstone Copper, Hudbay Minerals, B2Gold, First Quantum Minerals, Lundin Mining, and Endeavour Silver.  These stocks tumbled by over 15% this week.

Looking ahead, the top companies to watch next week will be top names like Constellation Software, Franco-Nevada, and Wheaton Precious Metals, which will publish their numbers.

TSX Composite Index technical analysis 

The daily chart shows that the TSX Composite Index has been in a strong uptrend in the past few years, and recently moved to a record high of $34,530.

On the positive side, it has remained above the 50-day Exponential Moving Average (EMA). It has remained above that dynamic average for years.

Therefore, this retreat seems like a minor pullback that will lead to more upside, potentially to the all-time high of $34,528.

A move above that level will point to more gains to the psychological level at $35,000.