New data show that around the same time Donald Trump was sworn in for his second term, Canadian investors began unloading their holdings of American equities. Coincidence? This is investment reporter Tim Shufelt, and today we’re looking at how the unravelling of Canada-U.S. relations may be changing how Canadians invest. We’ll also take a look at what Wall Street strategists are doing with their S&P 500 targets in light of the latest selloff.
FILE - Sunlight shines through the flags of Canada and the United States, held together by a protester outside on Parliament Hill in Ottawa, Feb. 1, 2025.Justin Tang/The Associated Press
TRADE WAR
Selling Trump
We now have our first data points about how Canadians are trading the Trump presidency. On Monday, Statistics Canada released its report on international securities transactions for the month of January. While these are not typically closely watched numbers, this iteration promised to be intriguing, given how momentous and chaotic January was for Canadians.
To recap, Trump took office and immediately set to work dismantling the integrated continental economy, framing Canada as a cheat and a leech on American prosperity, promising “economic force” to attack the Canadian economy and threatening to erase the border and claim Canada as an American state. Quite a month!
A boycott movement quickly sprang up. Canadians started to shop and travel differently. We now know they also started to retreat from the U.S. stock market. Canadian investors sold $17.6-billion of foreign stocks in January, according to StatsCan. That’s the largest divestment since March 2022, when, it should be noted, stocks globally were in the midst of a selloff as the excesses of the pandemic era unwound.
Almost all the action in January was focused on U.S. stocks – $15.6-billion worth sold by Canadians in just one month. Now, there are lots of good reasons for Canadians to have backed away from U.S. investments. Let’s consider a few of them, starting with the most obvious.
White-hot anger
Trump’s constant provocations have clearly raised the ire of everyday Canadians. A palpable wave of defensive patriotism has taken hold, while anti-American sentiment builds. An Angus-Reid poll conducted a couple of weeks ago showed that 38 per cent of respondents feel the U.S. should be seen as a potential threat, up from 13 per cent just a few months prior.
Other surveys show huge numbers of Canadians avoiding American products wherever possible and swearing off U.S. travel. Naturally, many Canadians see U.S. investments in a new light as well and are questioning whether their savings should be linked to the success of corporate America.
Unloading one’s U.S. investments for patriotic reasons could prove self-destructive. The U.S. stock market accounts for about two-thirds of global stock market capitalization, and is responsible for generating the bulk of global returns over the last few years. But that’s a cost some Canadian investors appear willing to pay if it means divesting from a country that is attacking their own.
Selling the Trump trade
Financial markets were quite happy with the results of the U.S. presidential election in November. Trump 1.0 was generally good for stocks, up until the pandemic at least. Why wouldn’t the sequel be even better, what with the deregulation and tax cuts that were sure to come?
Canadians, on the other hand, have been much more attuned to the drumbeat of economic nationalism that accompanied Trump’s comeback. The risks of a full-scale trade war have been impossible to ignore in Canada, even as U.S. investors have seemed unperturbed.
Not only were some Canadian investors early to abandon the Trump trade, they were also early backers of the revival of non-U.S. stocks. “Canadian investors have had four consecutive months of strong investment in non-U.S. foreign securities, totalling $25-billion from October, 2024, to January, 2025,” StatsCan reported.
Taking profits
Coming into 2025, U.S. stocks were on fire. Over the previous two calendar years, the S&P 500 Index was up by 55 per cent. Market commentary was full of talk of “American exceptionalism” and the death of international diversification.
That’s the kind of rampant enthusiasm some investors take as their cue to retreat from the frenzy. It’s a move that would have been supported by sky-high valuations, which assumed U.S. earnings growth of around 20 per cent a year. Sure enough, that earnings outlook is starting to break down.
American consumers are turning cautious and U.S. companies are seeing that reflected in their financials. Several retailers, including Walmart Inc. and Target Corp., have warned about the fallout from tariffs. Last week, both American Airlines Group Inc. and Delta Air Lines Inc. issued profit warnings over declining demand for air travel.
Traders work on the floor of the New York Stock Exchange during morning trading on March 14, 2025 in New York City. The market opened on an upward swing a day after the S&P 500 went into correction territory and with the Dow Jones on its way to a second-straight losing week and its worst weekly decline since June 2022.Michael M. Santiago/Getty Images
MARKET CORRECTION
Can’t blame the dip buyers
The S&P 500 is making a bit of a comeback since falling into a correction last Thursday, when it closed 10.1 per cent below its recent high. You can largely credit good old-fashioned dip buying for much of the rebound, and it’s easy enough to see why the bargain hunters have been scouring around.
A little over three weeks ago, the S&P 500 was at record highs and trading at 22 times forward earnings. By last Thursday, it dropped to 20 times earnings - precisely where investors bought in during the last two most recent market downturns in April and August of last year, according to Craig Basinger, chief market strategist at Purpose Investments.
Deep value investors would probably scoff at the idea of buying in at 20 times earnings. The price-to-forward-earnings multiple got to below 16 times as recently as 2022 - and far below that in earlier selloffs, Basinger points out.
But buying on the dip makes a lot of sense if you put any faith at all into Wall Street forecasts. Most strategists are holding firm on their year-end targets. Even after accounting for Goldman Sachs and Yardeni Research trimming theirs last week in the face of tariff uncertainties, the average target for the U.S. benchmark is 6,607, still implying gains of more than 15 per cent, according to Marketwatch.
--Darcy Keith
The essentials
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What’s up next
Canada’s latest inflation reading arrives Tuesday. The report for February is unlikely to be the nail biter it has been in the recent past, given tariff drama continues to dominate market concerns and the next Bank of Canada rate decision is still several weeks away. But with the GST holiday expiring during the month, it’ll provide an important reading on the trajectory of consumer prices. Headline CPI is expected to be up 2.2 per cent from a year ago, accelerating from January’s 1.9 per cent.
Tuesday also marks the beginning of the two-day Federal Reserve policy meeting. There’s little chance of the central bank changing its key policy rate when their decision is announced Wednesday. But the Fed’s commentary on the state of the economy will be highly interesting nonetheless, given it comes at a time U.S. consumer confidence is dropping like a rock and inflation expectations are surging.
See our full economic and earnings calendar here (You can bookmark the page - it gets updated weekly)