Signage is seen on Manulife Financial Corp.'s office tower in Toronto in in February, 2020. The share price of Manulife is down 15 per cent from a recent high in early April, but it has rebounded by an encouraging 3 per cent from a recent low over the past week.Cole Burston/The Canadian Press
Investors are facing a tough decision over whether to hop into beaten-up stocks when the global economy still looks wobbly and major indexes continue to deliver big surprises.
Blue-chip Canadian stocks highlight what’s at stake here.
One example: The share price of Manulife Financial Corp. MFC-T is down 15 per cent from a recent high in early April, but it has rebounded by an encouraging 3 per cent from a recent low over the past week.
Analysts believe that the initial downturn was largely due to concerns about the Toronto-based life insurer’s exposure to Asia. The region is key to Manulife’s profit expansion goals, yet also vulnerable to the full-blown trade war between China and the United States.
Still, other Canadian stocks have endured similarly wild swings.
Big banks, railways and energy producers – the backbone of many Canadian investment portfolios – sank on initial U.S. tariff announcements only to stir from their lows on … what exactly?
Economic activity remains far from certain, given the extraordinary changes unleashed by the White House this year.
Since Donald Trump began his second term as U.S. President in January, the country’s effective tariff rate on its trading partners has surged from 2.5 per cent to nearly 25 per cent. That is the highest level in more than a century, according to Nathan Sheets, global chief economist at Citigroup.
“As such, there are few precedents to draw on in judging the likely effects of these policies,” Mr. Sheets said in a note.
Lingering confusion over U.S. trade policy and its impact on supply chains and the global economy has weighed on the confidence of consumers, investors and businesses.
The latest survey of fund managers from Bank of America found that 42 per cent of respondents believe that a U.S. recession is likely, which is the fourth-highest reading in 20 years. A record number of global investors expect to cut their exposure to U.S. stocks, according to the survey.
The bond market is also flashing warning signs. The yield on the 10-year U.S. Treasury bond surged to 4.5 per cent last week, up from 4 per cent in just five trading days. Bond prices move in the opposite direction to yields, and the yield surge suggests investors may be fearful of rising inflation even as economic activity slows.
On the topic of fear, the price of gold – a popular safety bet for nervous investors – rallied to a record US$3,355 an ounce on Wednesday, up 28 per cent since the start of the year.
Investors are left weighing the extent to which this extraordinary unease is priced into Canadian blue chips. The answer: Not much.
The S&P/TSX 60 index, which tracks the largest Canadian stocks, has fallen just 3 per cent since the start of 2025. The index has outperformed the Standard & Poor’s 500 Index, the U.S. benchmark, by a substantial 8 percentage points over this period.
Cheaper valuations may be helping. The price-to-earnings ratio for the S&P/TSX 60, based on estimated 2025 earnings, is a reasonable 15.4, according to Bloomberg. That’s well below the P/E for the S&P 500, which is a lofty 20.2.
The Canadian index also has an attractive dividend yield of 3.1 per cent, which is higher than the 1.4 per cent payout for the S&P 500.
If money continues to flow out of U.S. assets to better investment opportunities abroad, Canadian blue chips could continue to outperform over the longer term.
The near term, though, is anyone’s guess, given that many stocks appear to have shaken off the worst concerns over trade and economic growth.
Canadian Pacific Kansas City Ltd.’s share price has retreated 13 per cent since the end of January, but the stock trades at more than 21 times estimated earnings, suggesting considerable optimism among investors that trade volumes will endure.
Similarly, the Big Six banks are down just 10 per cent since the end of January, even though a recession would surely raise loan losses.
“From a valuation standpoint, it is hard to argue that stocks are unusually attractive,” Gabriel Dechaine, an analyst at National Bank of Canada, said in an April 6 note.
If the current situation follows other significant economic downturns, such as the recession in the early 1990s, the financial crisis of 2008-09 and the COVID-19 pandemic, then bank stocks “are still in the ‘early innings,’” Mr. Dechaine said.
Canadian blue-chip stocks are down. Whether or not the lows are behind us, though, is an open question.