Canada’s stock market ended August with an unusual split-screen performance: a sharp retreat on the final trading day, but another solid gain for the month. Renewed fighting between the United States and Iran briefly drove crude prices more than 3% higher, giving Canadian energy shares a lift even as investors sold industrial, mining, technology and financial stocks.
By the August 31 close, the S&P/TSX Composite had fallen 0.8% to 36,270.48. Yet the benchmark still gained nearly 3% for August, securing its fifth consecutive monthly advance. The result showed how Canada’s resource-heavy market can benefit from rising commodity prices while simultaneously absorbing the economic risks that come with another escalation in the Middle East.
The TSX Lost Ground Monday but Still Locked In a Fifth Winning Month
The final session of August looked much weaker than the monthly numbers suggested. The S&P/TSX Composite dropped 283.44 points, or 0.8%, on August 31 to finish at 36,270.48. That was its lowest closing level since August 6. Selling was broad enough that only two of the benchmark’s 10 major sectors finished the day higher. Industrials, technology and financial stocks all declined, while materials stocks were also hit as precious- and base-metal prices weakened. After a strong run, some investors appeared willing to take profits before entering September, historically a difficult period for equities.
The bigger picture was considerably more positive. Despite Monday’s decline, the TSX finished August nearly 3% higher, extending its winning streak to five consecutive months. Mining shares had played an especially important role during August, with the materials sector having been on course late in the month for gains exceeding 25%. That strength helps explain why one weak trading session was not enough to erase the index’s broader advance. For Canadian investors, it was a reminder that the TSX can behave very differently from Wall Street because resource producers occupy a much larger share of the domestic benchmark.
Renewed U.S.–Iran Fighting Quickly Repriced the Oil Market
The catalyst for Monday’s energy move came from the Strait of Hormuz. U.S. forces struck two Iranian launchers on Larak Island after American officials said Revolutionary Guard forces had been preparing to launch rockets carrying sea mines into the strategically critical waterway. Iran subsequently said it fired ballistic missiles at two U.S. bases in Jordan. The exchange represented the first direct attacks between the two countries in roughly a month, abruptly returning military escalation to a conflict that had recently been increasingly shaped by sanctions, blockades and economic pressure.
Oil traders reacted almost immediately. During Monday trading, Brent and West Texas Intermediate crude both climbed more than 3.5%, with Brent reaching roughly US$91.25 a barrel at one stage and WTI reaching about US$86.36. The gains moderated before settlement: WTI ultimately closed 2.8% higher at US$85.76, while Brent ended 2.7% higher. The distinction matters because the headline spike above 3% captured the market’s first reaction, while closing prices reflected some later moderation. Crude continued trading above US$91 for Brent early Tuesday as traders assessed whether the confrontation would escalate further or remain contained.
Canada’s Heavy Energy Exposure Helped Cushion the Damage
Higher oil did not lift the entire Canadian market, but it created a meaningful buffer. The TSX energy sector advanced 1.4% on August 31, making it one of just two major sectors to finish higher. By comparison, materials declined 1.7%, industrials lost 1.3%, technology fell 1.3% and heavily weighted financials dropped 0.7%. That divergence helps explain why the overall index fell despite a powerful rally in crude. Energy companies were receiving a potential earnings tailwind from higher commodity prices at precisely the moment that many other businesses were confronting the prospect of higher fuel costs, inflation and geopolitical uncertainty.
The effect is particularly visible in Canada because oil and gas companies carry substantial weight in the domestic market. S&P Dow Jones Indices data showed energy representing about 17% of the S&P/TSX Composite in late May, alongside similarly large materials exposure and an even bigger financial sector. Companies such as Enbridge and Canadian Natural Resources rank among the index’s major constituents. Consequently, an oil shock can provide support to Toronto that may not exist to the same degree in markets dominated by technology or consumer companies. Monday demonstrated that advantage, but also its limitation: a 1.4% energy gain could soften broad selling elsewhere, not completely overcome it.
Higher Oil Is Both a Market Tailwind and an Inflation Problem for Canada
For Canadian energy producers, expensive crude can support cash flow and profitability. For Canadian households and policymakers, however, the same price move carries a very different message. Statistics Canada reported that consumer prices were already 3.0% higher year over year in July, while gasoline prices had surged 25.7%. Gasoline was one of the principal forces pushing headline inflation upward, and Statistics Canada specifically connected the increase to the Middle East conflict, restrictions around the Strait of Hormuz and disruptions to shipping routes. Inflation excluding gasoline was considerably lower at 2.2%, illustrating just how important energy had become to the headline figure.
That creates a complication for the Bank of Canada. Its overnight rate remained at 2.25% after the July decision, with another policy announcement scheduled for September 2. The central bank had already acknowledged that Middle East-driven oil prices were raising near-term inflation while weighing on global growth. Meanwhile, the Canadian economy had recently shown more momentum: real GDP increased 0.8% in the second quarter, with exports, household spending and business investment contributing. Policymakers therefore face competing signals. Stronger domestic activity argues against unnecessary stimulus, while renewed energy inflation could make rate cuts harder even if trade uncertainty eventually slows growth.
The Strait of Hormuz Remains the Risk That Markets Cannot Ignore
The reason relatively limited military strikes can move oil by several percentage points lies in geography. Before the current conflict severely disrupted shipping, the Strait of Hormuz handled roughly one-fifth of global petroleum liquids consumption. U.S. Energy Information Administration data show about 21.6 million barrels per day moving through the strait in the fourth quarter of 2025. By the second quarter of 2026, that flow had collapsed to an estimated 4.9 million barrels per day. Reuters reported that visible commodity-vessel traffic dropped to only around five vessels per day over the latest weekend, underscoring how fragile normal shipping remained.
That vulnerability makes the TSX’s five-month winning streak more complicated than the headline suggests. Higher crude can boost major Canadian producers and strengthen energy-heavy indexes, but a prolonged supply shock can also lift gasoline and transportation costs, pressure household spending and keep interest rates higher for longer. Investors are also entering September amid renewed Canada–U.S. trade tensions and uncertainty around North American growth. The TSX has shown notable resilience, ending August with another monthly gain despite those pressures. Whether that momentum survives will increasingly depend on whether commodity strength remains an earnings advantage—or turns into a wider inflation and growth problem.
