Is the debasement trade over with Warsh leading the Fed?
Geoff Phipps, CFA, Portfolio Manager and Trading Strategist
What’s driving the TSX’s 33% return over the past year?
Jeff Bradacs, CFA,
Co-Head Equity Strategies, Head of Portfolio Management & Trading
Over the 12 months ending June 30, the S&P/TSX was one of the strongest-performing equity markets globally, returning approximately 33%. The strength of the Canadian market surprised many investors given that, a year earlier, sentiment toward Canada was decidedly cautious amid Liberation Day tariff uncertainty, a sluggish domestic economy, and concerns around growth.
Part of the outperformance reflects Canada's sector composition. The market benefited from strong commodity exposure, with gold equities leading performance in 2025 and energy stocks driving returns in 2026. However, what is perhaps more surprising is that Canada's strength extended well beyond its resource sectors.
Even within comparable industries, Canadian companies generally outperformed their U.S. peers across a wide range of sectors, including banks, life insurance, oil & gas exploration, pipelines, utilities, and even consumer companies. This broad-based outperformance is particularly notable given Canada's relatively weak domestic economic backdrop.
There is unlikely to be a single explanation. A more attractive starting valuation certainly helped, as Canadian equities entered the period trading at a meaningful discount to U.S. markets. Canada may also have benefited from renewed foreign investor interest, offering exposure to global businesses with strong corporate governance and lower valuations than many international alternatives. Improved sentiment following the election of a new federal government, which some market participants viewed as more business-friendly, alongside a renewed focus on investment and major project development, may also have attracted incremental capital. In addition, there are signs that Canadian pension funds, after years of steadily reducing domestic equity allocations in favour of global markets, have become more constructive on Canadian equities.
Looking ahead, the starting point is more nuanced than it was a year ago. Valuations across many sectors have expanded, reducing some of the discount that previously existed. For example, Canadian banks have rerated from roughly 10–12x earnings to 15–17x, a meaningful change in investor expectations. As a result, the drivers of market performance may look different over the next year than they did over the last. Factors such as corporate earnings, commodity prices, capital flows, and the policy environment are all likely to play an important role in shaping relative performance.
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