Trump's Unintended Consequences: How a Divisive US President Boosted the Canadian Stock Market

Strategic Insights -

A breakout year for the Canadian stock market has many investors pondering the reasons behind its remarkable performance. Surprisingly, the answer may lie in the erratic policy-making of US President Donald Trump. Despite his best efforts to undermine the Canadian economy, the country's S&P/TSX Composite Index has thrived since his inauguration, with a 22.5% return in U.S. dollar terms from January through the first week of September.

Key Takeaways:

  • The Canadian stock market has outpaced the US market, returning 22.5% in U.S. dollar terms, compared to 12.1% for the US stock market.
  • The US dollar has depreciated against its major counterparts since the start of the year, with fund managers surveyed by Bank of America listing U.S. dollar debasement as one of their major worries.
  • The Canadian stock market's outperformance can be attributed to the perceived relative stability of other countries, as well as the attractiveness of Canadian stocks in comparison to US stocks.
  • Canadian stocks trade for nearly 29 times their average inflation-adjusted earnings of the past decade, while US stocks trade for a stratospheric 44 times their 10-year average earnings.
  • The fate of US stocks will depend on how the US-dominated AI boom progresses, while Canadian stocks will be influenced by the price of gold and the gold-mining sector.

Statistics:

  • Canadian stocks returned 22.5% in U.S. dollar terms from January through the first week of September.
  • US stocks returned 12.1% in U.S. dollar terms over the same period.
  • The US dollar has depreciated 10% against the Canadian dollar since the start of the year.
  • Fund managers surveyed by Bank of America list U.S. dollar debasement as 1 of 10 major worries.
  • Canadian gold miners such as Agnico Eagle Mines Ltd. and Barrick Mining Corp. have gained 80% or more in some cases.
  • The price of gold has soared 40% this year.

Sources:

  • IAN McGUGAN, The Canadian Stock Market is Having a Breakout Year
  • Bank of America, Fund Managers Survey
  • Citigroup, Valuation measures
  • Capital Economics, analysis of the S&P/TSX Composite
  • Bloomberg, Gold prices