What Canadian markets – and investors – made of Trump re-election

Donald Trump’s victory may have been anticipated by financial markets in the run-up to the U.S. presidential election, as what is known as the Trump trade blossomed.
But the strong market reaction on Wednesday suggests that investments linked to Mr. Trump’s promises are now in full bloom.
U.S. stocks soared. The Dow Jones Industrial Average jumped more than 1,500 points for its biggest gain in two years, and the S&P 500 rallied 2.5 per cent to 5,929.04 – record highs for both indexes.
Now, though, Canadian investors must gauge the financial and economic impact of everything from stiff tariffs and restricted trade, to looser financial regulations and waning demand for some commodities.
What’s clear so far: The end of a tight presidential race, which stoked concerns about disputes, delays and unrest, has given way to relief that the election has ended with some clarity.
“We will not have to endure weeks or months of a contentious and contested election and all the uncertainty that would have implied. A sigh of relief from that alone,” David Rosenberg, founder of Rosenberg Research, said in a note.
He added: “That said, this is more than a relief trade – this is a power trade on steroids.”
U.S. financials, energy stocks and industrials led the day’s gains, as investors anticipated that Mr. Trump’s policies will reward companies with direct ties to the U.S. economy. JPMorgan Chase & Co. rose 11.6 per cent.
Bitcoin, which had been rising after statements by Mr. Trump during the campaign that he will make the United States the “crypto capital of the planet,” soared to a record high above US$76,000.
Another standout: Tesla Inc. rose 14.8 per cent, reflecting the hope that chief executive Elon Musk’s ties to Mr. Trump will yield benefits to the electric-vehicle maker.
In Canada, stocks also enjoyed a postelection rally, even if they lagged their U.S. counterparts. The S&P/TSX Composite Index gained 1.1 per cent.
Financials rose 1.6 per cent. Life insurance stocks and banks with large U.S. operations, such as Toronto-Dominion Bank and Bank of Montreal, led the way.
Energy stocks increased 2 per cent, as the price of crude oil nudged higher. Pipeline operators, which could benefit from easing regulations, also posted strong gains.
But the Canadian market also has considerable exposure to commodities and interest rates, which tempered enthusiasm in sectors that produce gold and copper, or stocks that pay hefty dividends.
Mr. Trump’s enthusiasm for tariffs and lower taxes could lift inflation and government deficits, and some economists expect that Federal Reserve rate cuts won’t be as deep as originally expected.
“We are changing our forecast for the Fed, as higher inflation results in a slower pace of rate cuts in 2025,” Beata Caranci, chief economist at Toronto-Dominion Bank, said in a note.
Though the Fed will likely cut its key rate in November, December and January, Ms. Caranci now expects that the central bank will pause in March.
The bond market appears to agree: The closely watched yield on the 10-year U.S. Treasury bond rose to a five-month high of nearly 4.5 per cent early Wednesday, up from 3.6 per cent in mid-September and not far from last year’s multiyear high of 5 per cent.
As bond yields rise, dividend-paying stocks look less attractive next to bonds. That’s why some of the more income-oriented Canadian sectors, such as utilities, telecoms and real estate, declined.
As for commodities, gold fell 2.9 per cent, which weighed on Canadian mining stocks such as Barrick Gold Corp. ABX-T and Agnico Eagle Mines Ltd. AEM-T
Some investors embraced gold as a haven from political uncertainty during the presidential campaign, when the price hit record highs. But bullion may look less appealing now that stability has prevailed.
Copper, a key component for wind and solar-energy sources, declined 5.4 per cent as investors weighed the possibility that Mr. Trump will curtail clean-energy incentives introduced under President Joe Biden.
“Trump has already promised to roll back uncommitted expenses from the Inflation Reduction Act so expect to see lower near-term demand growth from the energy transition,” Shane Nagle, an analyst at National Bank of Canada, said in a note.
If the initial market reaction reflected newfound certainty in the U.S. political direction, the next steps may be far less clear.
One source of uncertainty: how far Mr. Trump will go in using tariffs to gain advantages with U.S. trading partners, especially with the United States-Mexico-Canada Agreement (USMCA) up for review in 2026.
“Countries such as Canada and Mexico may well be collateral damage in the ongoing U.S. protectionism towards China, and vice versa,” Ian de Verteuil, an analyst at CIBC Capital Markets, said in a note.
He identified Canada’s dairy and softwood-lumber markets as key trade irritants. Canadian forestry stocks struggled on Wednesday over concerns about how the new administration will handle softwood-lumber exports. West Fraser Timber Co. Ltd. WFG-T fell more than 3 per cent in early trading, before rebounding in the afternoon.
Still, Mr. Trump’s trade policies could end up rewarding Canadian investors, too. For example, Canadian gas producers may gain access to U.S. terminals under Mr. Trump’s leadership. More broadly, Canada should benefit from policies that target U.S. economic growth.
“To be clear, an America First policy is meant to increase economic activity in the U.S., and this typically has positive readthroughs for the Canadian economy,” Mr. de Verteuil said.