Recent research suggests that the Canadian equity market does not substantially change during conservative or liberal governments. In contrast, the researchers found a correlation between Canadian election outcomes and the stock market from a study in the 1990s. According to the study, the Canadian stock market reacted favourably to elections won by liberals and conservatives. Another study found that the Canadian equity market yielded remarkably higher equity in the late part of the electoral cycle compared to the first two years. The study also showed that specific sectors, such as finance, energy, transportation, and retail, perform better under a liberal government.
Key Sectors To Watch During the Canadian Election
Federal elections remain among the most decisive socio-economic factors influencing the financial markets. Investors looking to capitalize on the volatility of electoral events can strategically use a CFD broker to allocate resources for projected returns. While previous market behaviour does not guarantee the same outcomes in the future, it gives perspective on specific recurring patterns.
Canada is the world’s tenth-largest economy, with a gross domestic product (GDP) of $2.14 trillion. One-third of Canada’s GDP is derived from international trade, signalling a heavy dependence on exports and imports of goods and services.
Canada’s three largest trading partners are the United States, the United Kingdom, and South Korea. Due to the country’s heavy reliance on international trade, trade wars with any of Canada’s top trading partners will leave a significant gap in the country’s gross revenue.
As the 2025 federal elections draw near, Canadian investors should evaluate each candidate’s stance on strategies to boost each sector. The sectors most prone to election news and government policies include the finance, energy, manufacturing, transportation, real estate, mining, quarrying, and oil and gas extraction industries.
Decoding Sector-Specific Market Signals
Canada’s energy sector accounted for an estimated 10.3% of the nominal GDP in 2023. The country exported over $199 billion worth of energy products to over 100 countries, with the US receiving 89% of the total goods. As the 6th largest energy producer in the world, the views the federal prime minister holds on the energy sector can drive swift changes to energy companies on the stock market.
Former Finance Minister Chrystia Freeland proposes replacing the carbon tax with other incentives that reward Canadians for choosing greener alternatives. Freeland also promises to push liquefied natural gas exportation to its trading partners. On the other hand, Mark Carney, former Bank of Canada and Bank of England governor, aims to expand Canada’s energy infrastructure to be less dependent on the United States, the biggest buyer of Canada’s energy goods.
With US President Donald Trump’s 25% tariffs on Canadian imports and 10% tax on energy products still looming, investors wonder how the Canadian government will respond. Freeland, who led Canada’s response to Trump in his first term in office, suggested Canada take an aggressive stance with a dollar-for-dollar retaliation on all US tariffs.
Canada’s car manufacturing industry will also be affected, as will the energy sector. Although Trudeau’s administration is offering monetary relief to cushion the impact of US tariff actions, producers are left to find alternative markets for their products. The ongoing tariff actions between Canada and the US may have a potentiated effect during elections. Investors and CFD traders can expect stock market prices to respond to tariff policies that affect the performance of the energy sector at home and abroad.
Case Studies: Past Elections and Sector Reactions
It’s important to evaluate the historical performance of Canada’s stock index, the S&P/TSX Composite Index, versus the party in the federal office. This is fundamental to understanding how past elections and administrations affected sector reactions.
The TSX’s historical performance, which aggregates companies from various sectors, shows that from 1922, the Canadian stock market returns were greater during the first, second, and fourth heads of a liberal government than during any period a conservative government was in power.
Common knowledge tilts towards a conservative government as the best economic setting for the stock market to perform better. Conservatives usually advocate for lower corporate taxes, less stringent policies restricting businesses, and higher incentives for corporations and foreign investments. While these variables should positively lead to better stock market returns under a conservative government, historical data proves otherwise. The reality may not be hinged on the economic policies but on the ruling government’s international relations.
Although the TSX’s total market capitalization has grown by $700 billion since Trudeau’s 2019 entry into power, the S&P/TSX has lagged 70 percentage points against the S&P.
Under previous conservative prime minister Stephen Harper, the TSX cumulatively underperformed by 44 percentage points compared to Trudeau’s 70.
However, the annualized rates provide a better outlook for a more equivalent comparison as both prime ministers served for different durations. The annualized rates, which provide insights into the yearly performance gap of the S&P/TSX, show that Trudeau’s administration saw a -7.3 percentage point while Harper’s was -3.4
Overall, historical data points to Justin Trudeau’s Prime Ministerial tenure as the worst for Canadian stock market performance. With the 2025 elections on the way, which will likely see Trudeau out of power having lost majority confidence in Congress, a conservative new leader may bring the pro-business policy stance the Canadian economy desperately needs.
Preparing for Election-Driven Sector Volatility
CFD trading offers investors and traders more significant opportunities to scale profits but requires strategic planning and caution during high market volatility. Trading the TSX index offers a bigger cushion for sector-specific spikes that election news can trigger. Investors can stay ahead of the geopolitical impact on CFD trades and the general stock market by maintaining a diversified portfolio in various sectors.
