Canada stocks gain on prospects of softer U.S. trade policy after midterms

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Canada stocks gain on U.S. trade

Highlights

The S&P/TSX Composite index rises 2.3% for its strongest one-day gain since March 31 and is up 1.6% since the U.S. elections.
Democrats flip eight Senate and over 40 House seats, raising hopes of softer U.S. trade policy and potential tariff relief for Canada.
Despite Democratic gains, the president retains substantial authority on tariffs, making the outlook for Canadian trade policy still uncertain.

Election outcome lifts hopes for tariff relief

As reported by CNBC, the S&P/TSX Composite index rises 2.3% the day after the U.S. elections, its strongest one-day gain since March 31, and is up 1.6% since the vote, while the S&P 500 falls 0.5% over the same period.

Democrats flip eight Senate seats and more than 40 House seats to take control of Congress, fuelling investor expectations that Washington could adopt a softer approach to trade relations with Canada. William Alan Reinsch, Scholl Chair in International Business at the Center for Strategic and International Studies, says there is optimism that policy could change, helped by election results and Democratic statements indicating an intent to address Canadian tariffs.

Canada remains heavily exposed to the U.S. market. In 2024, it sends 76% of its goods exports, worth $596.1 billion, to the U.S., according to Canadian government data, with major export categories including raw aluminum, car parts, crude petroleum, and paper and wood pulp.

Trade-sensitive sectors seen benefiting most

The market reaction follows a period of pressure linked to U.S. trade actions under the second Trump administration. The iShares MSCI Canada ETF drops 5.4% on April 4, 2025, two days after President Donald Trump unveils broad tariffs on multiple countries, including Canada, and additional 50% levies announced in July on some Canadian imports trigger further stock sell-offs.

Chris White, head of research at 5i Research, says broad parts of the Canadian market have been hit by tariff concerns, while investor fears around global trade complexity contribute to selling in affected names. He points to Magna International and Linamar Corporation as companies that could benefit from tariff relief, while firms with significant U.S. sales such as Canada Goose and Molson Coors are also seen as potential gainers.

Democrats are expected to challenge Trump's tariff policy next year, including through proposed trade law changes such as the BAD DEAL Act introduced in September by Senators Kirsten Gillibrand and Peter Welch. Still, Scott Laing, a finance professor at the University at Buffalo School of Management, says the president retains substantial authority because Democrats do not hold a supermajority, leaving the ultimate direction of tariffs in the White House's hands.

We recently wrote about TSX trading flat as utility and telecom gains offset weakness in mining and technology shares.

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