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David Rosenberg: How did the Canadian market hit a new record? Gold exposure has helped
Despite a flurry of twists and turns in the constantly evolving tariff saga, a period of relative calm has ensued after the chaos of tariff announcements and the early April market selloff, triggered by 'Liberation Day.' As the third-largest trading partner of the United States, Canada has fared relatively well after being excluded from the Liberation Day tariffs and having Canada-United States-Mexico Agreement-compliant products excluded from the 25 per cent 'fentanyl' tariffs.
Helped by the 90-day tariff reprieve, set to expire July 9, the ongoing constructive tone in tariff negotiations helped the Canadian cyclical bucket, as industrials (driven by another tailwind explained below) and financials performed well during this timeframe.
It was a complete reversal of what we experienced in February and March, when market sentiment was dominated by the height of tariff fears and defensive plays (such as dollar stores and utilities) were outperforming. So much so that we saw both the S&P/TSX industrials index and the S&P/TSX financials index post double-digit returns during these 17 trading days — a nice juicy return from a sector rotation perspective.
To a large extent, what investors liked in the latest banking sector reporting season was the move to get ahead of the consumer delinquency cycle and sharply bolster loan loss reserve provisioning.
In turn, this helped the overall Canadian benchmark, given its relative valuation support, namely, trading at about a 16x forward P/E multiple versus more than 21x for the S&P 500.
From a sector-positioning perspective, another crucial pillar of strength was derived from the gold miners' price performance, boosted by the recent rally in gold prices to around US$3,400 per ounce and up nearly 30 per cent year to date.
In contrast to the S&P 500, which has but one miner in the index (Newmont Corp.), which accounts for 0.1 per cent of the market cap, Canada is replete with 27 members that comprise a much higher 8.9 per cent share of the S&P/TSX composite index. The exposure the Canadian index has to precious metals is so precious that the sector has been responsible for half of the 7.3 per cent advance so far in 2025.
Gold has continued to benefit from the convergence of structural tailwinds, such as the global monetary debasement, sovereign fiscal largesse and its traditional role as a macro hedge against geopolitical uncertainty. Rising bullion prices, combined with still relatively low valuations for the gold miners, have provided extra torque to the positive contribution by the materials sector during this timeframe.
A case in point is Newmont, the largest miner by market capitalization, which trades at a 13x NTM P/E, vs. its five-year historical average of 20x.
According to CIBC Capital Markets, mining has accounted for approximately 40 per cent of new Canadian issuances on a year-to-date basis. Consequently, this strong price performance from the precious metals sector (comprising about 11 per cent of the S&P/TSX composite) has resulted in underweight generalist funds adding exposure.
Additionally, ongoing gold purchases by central banks and governments have continued to support gold prices and mining shares. According to Goldman Sachs Group Inc., global central banks are buying 80 metric tons of gold monthly, and sovereign wealth funds are collectively acquiring 1,000 tons annually — about a quarter of yearly global production. We remind you that these strategic market players are long-term investors who happen to be price-indiscriminate.
On April 28, Prime Minister Mark Carney's Liberal Party formed a minority government in a remarkable comeback from early polling deficits. The global investing community took an optimistic view that he can reinvigorate the Canadian economy and navigate a challenging diplomatic environment with its neighbour south of the 49th parallel.
During the campaign, the Liberals proposed an activist fiscal agenda that set out nearly $130 billion in new spending initiatives spread over several important themes, including infrastructure building, defence spending, housing affordability, internal trade and economic development, and the fast-tracking of resource project development.
One can see that the central theme here is to pivot Canada towards domestic economic resilience after relying on a deepening U.S. relationship for 80 years. Moreover, Carney proved his ability to be firm yet diplomatic in his first meeting with U.S. President Donald Trump, and that may reflect early signs of tensions thawing between Washington and Ottawa.
From a stock market perspective, this percolated into a strong showing for the S&P/TSX capped industrials index, which includes select engineering and consulting (E&C), infrastructure and aerospace and defence stocks, posting an increase of approximately 10 per cent.
In the famous words of Walter Wriston, 'Capital goes where it is welcome and stays where it is well treated.' In this sense, both domestic and foreign investors took notice and started pricing the change in leadership as a catalyst for streamlining permitting processes, accelerating infrastructure approvals and reducing regulatory friction — key enablers of capital investment and long-term earnings growth.
In the aftermath of Trump's tariff announcements and threats to annex Canada as the 51st state, Canadians exhibited a collective push to support domestic products and services, strengthen local businesses and reduce reliance on foreign imports.
According to Statistics Canada, air travel to the south of the border posted a drastic 24 per cent year-over-year decrease in May. Travel by land fared even worse, posting a 38 per cent year-over-year decline in the same period, marking the fifth consecutive month of declines versus the prior year. This meant that more Canadians were spending money at home, buying into the Buy Canadian theme, and providing a boost to domestic retailer margins in the process.
At the company-specific level, we heard an apparent read-through of this economically nationalistic trend from Loblaw Cos. Ltd., which reported a 12 per cent uptick in sales of Canadian-made products. In the company's first-quarter earnings call, one of the key takeaways was when chief executive Per Bank said, 'Canadians care deeply about the region of the product they purchase and we continue to actually seek out Canadian manufacturers for the products we sell.'
Additionally, he emphasized that data from Loblaw's online grocery service showed a clear pivot by shoppers towards the Buy Canadian theme via both shopping intentions and actual dollars spent. A case when the soft data were actually in sync with the hard data!
We heard similar management commentary from the likes of Metro Inc. and George Weston Ltd., with Metro saying that 'sales of Canadian products (are) outpacing total sales.'
From an equity market perspective, we saw this theme play out in the price performance of the S&P/TSX consumer staples index, which was up by 10.6 per cent, and acted as another fundamental pillar of strength that has helped the S&P/TSX composite wipe out its losses following April's global nosedive.
All in, a confluence of fundamental factors pushed the S&P/TSX composite to become one of the first global benchmarks to get back to its pre-'Liberation Day' levels. Thus, the Canadian benchmark has benefitted from sectoral composition and a cyclical/value bent, an economically nationalistic trend that buoyed domestic retail and a newly elected government with a pro-growth fiscal playbook. Global markets have added a new term to the investing lexicon: The Great White Long Trade.
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The Canadian market has unique characteristics compared to the U.S. in that it generates far greater dividend and earnings yields. The relative valuations in the Canadian stock market remain compelling: you get paid to take on equity risk when you compare it to the alternatives in cash and bonds. The same cannot be said for U.S. markets.
David Rosenberg is founder and president of independent research firm Rosenberg Research & Associates Inc. Alp Erdogan is an external research consultant there. To receive more of David Rosenberg's insights and analysis, you can sign up for a complimentary, one-month trial on the Rosenberg Research website.
