JOHN SILVIA, FOUNDER, DYNAMIC ECONOMIC STRATEGY; FORMER CHIEF ECONOMIST, WELLS FARGO; IIAC ADVISOR 

Canadian equity performance on the Toronto Stock Exchange (TSX), year-to-date, falls below the S&P500 but above the MSCI EAFE (Europe, Australasia, and Far East) performance. This result is consistent with an economy that has grown, year-to-date, below the pace of the U.S. and above the pace of the eurozone. Economic policy in Canada also falls between the optimism of the U.S. and the struggling search for definition in the Euro community.

Fundamentals matter. Beginning in the fourth quarter of 2023, both inflation and the ten-year interest rate began to decline in Canada. Equity markets noticed. The S&P/TSX is now up 32% over the last twelve months. Two economic factors helped promote equity gains. U.S. economic growth has averaged three percent over the last three quarters while the Canadian dollar has depreciated mildly over that same period.

As for details, the price-to-trailing earnings for the top 25 S&P/TSX equities has risen sharply over the past six months. The equity market is discounting a stronger economy and lower interest rates for both the Canadian and U.S. economy. The broad gains in U.S. equities in 2024 has benefited the Canadian market.  The TSX index is highly correlated to the S&P 500. Year-to-date the TSX is up 15.3 percent while the S&P 500 is up 19.6 percent.

Monetary policy is favorable in both the U.S. and Canada as both central banks are biased to lower policy rates at this time.

Easier regulation is the expectation for the new U.S. administration. Less barriers to business initiatives and M&A activity will promote stronger economies and financial market valuation.

However, on the side of uncertainty is the matter of tariffs. The new administration is advocating tariffs. To what extent this is the first ploy in a path of negotiations remains to be seen. In my view, Canada is not the first name, nor the second name on the list of trade violators. The focus of the incoming administration is elsewhere.