Pro-Trump hats are seen as traders work on the floor of the New York Stock Exchange during morning trading, on Aug. 13.ANGELA WEISS/AFP/Getty Images
The Canadian stock market is having a breakout year. Who do we have to thank for that? Believe it or not, Donald Trump.
If it shocks you to hear the Orange Terror lauded for his role in boosting Canadian stocks, consider what has transpired since he took office in January.
From inauguration day onward, the U.S. President has done his best to hammer the Canadian economy. Ordinarily, that would be bad for Canadian stocks. But not this time. Despite Mr. Trump’s bubbling nastiness, Canada’s S&P/TSX Composite Index has thrived since he took his oath of office.
Why? At least in part, it’s because the President’s erratic policy-making has helped to make Canadian stocks more attractive by undermining confidence in the U.S. economy and the U.S. dollar.
His One Big Beautiful Bill Act ensures the United States will run massive budget deficits as far as the eye can see. His assault on the Federal Reserve saps confidence in Washington’s ability to keep inflation under control. Meanwhile, his me-first moves on trade and defence demonstrate that Washington can no longer be counted on to keep its word or to maintain alliances.
Global money managers are taking note. Compared to the spiralling chaos in Washington, other countries look like havens of relative stability. So do other currencies.
The U.S. dollar has faded against its major counterparts since the start of the year as stubborn inflation, slowing growth and the prospect of lower interest rates undermine the greenback’s appeal. Fund managers surveyed by Bank of America continue to list U.S. dollar debasement as one of their major worries.
Creeping anxiety about the state of U.S. governance has led to an outcome that few people foresaw back on Mr. Trump’s inauguration day. On the one hand, the U.S. stock market is still booming, thanks largely to euphoria over the potential of artificial intelligence. On the other hand, other countries’ markets are booming even more. Measured in U.S. dollar returns, Wall Street has been an also-ran this year.
From January through the first week of September, Canadian stocks returned 22.5 per cent in U.S. dollar terms. They far outpaced U.S. stocks, which returned just 12.1 per cent.
Many other markets also left Team USA in the dust. Among the winners were Chinese stocks (up 34.5 per cent), German stocks (up 29.3 per cent), British stocks (up 22.8 per cent) and Japanese stocks (up 19.1 per cent).
The outperformance of non-U.S. markets marks an emphatic turnaround from the situation that prevailed over the past decade, when Wall Street made a habit of thumping its international rivals year after year.
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Can Canada and other non-U.S. markets continue their winning ways? Maybe so. By most measures, international markets are still considerably cheaper than Wall Street.
Granted, this is all relative: After their big run-up this year, Canadian stocks now trade for nearly 29 times their average inflation-adjusted earnings of the past decade, according to Citigroup number crunchers. That is a lofty level. If the market ratio reverts to something like its historical average of 16, Bay Street’s returns over the next few years will be substandard.
However, Canadian stocks still look like a sizzling bargain compared to U.S. stocks, which trade for a stratospheric 44 times their 10-year average earnings. That is one of the highest levels on record. If Wall Street’s ratio reverts to its long-run mean over the next decade, U.S. investors should prepare for years of dismal returns.
But that may be getting a bit ahead of ourselves. Valuation measures are a good guide to long-term returns. Unfortunately, they don’t offer many clues about what will happen over the next few months. Expensive markets can go on being expensive for a long time.
Over the next year or so, the fate of U.S. stocks will probably depend on how the U.S.-dominated AI boom progresses.
For Canadian stocks, a big factor will be gold. Mr. Trump’s war on normalcy has helped to boost the Canadian stock market by chasing many investors away from U.S. dollars and toward the perceived safety of bullion.
As investors hunt for a haven from the looniness in Washington, the price of gold has soared 40 per cent this year. Canadian gold miners such as Agnico Eagle Mines Ltd. and Barrick Mining Corp. have done even better, with some gaining 80 per cent or more.
Their rocketing share prices have been a key factor in lifting the S&P/TSX Composite to its big gains in recent months. In fact, nearly half of the benchmark’s massive advance this year has come from the index’s gold-heavy materials sector, according to Capital Economics.
So, thank you, Mr. Trump. You may be doing your best to ravage Canada’s economy, but you have unintentionally been a key factor in boosting the Canadian stock market. That doesn’t make us like you any more, but it does provide at least a bit of consolation for investors.