[Summer 2025 GPS] Canada: Trying to Chart a Course

In our last Newsletter, we indicated that Canada, through its bruised trade relationship with the US, has a golden opportunity to become a global economic powerhouse, something that we believe can be achieved with tax and capital markets reforms, unleashing Canada’s abundant natural resources, and benefiting from its prime minister's warm relationship with Europe.

The current government faces many challenges; the first is the difficulty of striking a trade deal with its biggest trading partner, the US. The good news is Canada now has the lowest U.S. tariff rate of any major trading partner. Canada-United States-Mexico Agreement (CUSMA) exemptions resulted in most Canadian goods crossing the U.S. border tariff-free in April. The U.S. and Canada are expected to finalize a trade agreement in the coming months. Canada’s TSX market has performed very well in 2025, despite the looming economic storm clouds of tariffs, high unemployment rates, an aging population, declining productivity, and higher interest rates, which are affecting a large portion of mortgage renewals in 2025 and 2026. The reasons for such solid performance for the Canadian stock market are many:

• Gold and silver prices surged in 2025, boosting Canadian mining stocks, which make up about 10% of the TSX.
• The TSX’s valuation advantage over US equities attracted investors seeking more attractively priced stocks, particularly during periods of uncertainty over American economic and trade policies.
• Trade tensions and shifts in US policy led some investors and central banks to rethink their reserve allocations, further underpinning the demand for gold and Canadian assets.

This solid performance of the Canadian stock market will only continue with solid earnings growth from the Canadian companies, which may be challenging in the face of the economic headwinds we mentioned previously.