A few months ago I wrote in these pages about the “Trudeau effect,” my term for the serious underperformance of the Canadian stock market vis-à-vis the American markets since the election of the federal Liberal government under Justin Trudeau.
The differential market performance has become even more pronounced since I wrote that article, especially in the last three months. Over the last two years, as of the end of September 2018, State Street’s SPDR S&P 500 ETF Trust (ticker: SPY), which is designed to track the S&P 500, outperformed its Canadian equivalent, the iShares S&P TSX 60 Index ETF (ticker: XIU) by about 11.5 per cent on an annual basis. But from July to September 2018, we have seen the U.S. market index outperform the Canadian stock index by a whopping 28.8 per cent annualized.
One might ask: Why look at the stock market and not the performance of the economy? Indeed, Canada’s economic performance is one of the best in the G7 while the stock market has been a laggard. So what is a better gauge of successful management of the economy and the country? Should economic performance not be highly correlated with the stock market?”
In reality, the stock market discounts the future not the current economic performance. And Canada’s future looks less than clear under the stewardship of this Liberal government.
Trudeau and his ministers have made it clear they want corporations to become benevolent organizations that put workers before shareholders. They favour taxing corporations and the rich, and adding regulatory impediments and red tape to corporate activity. They are big supporters of income redistribution as opposed to making the pie bigger for everyone. They want to regulate the economy and nudge corporations to submit to the Liberal government’s social views and economic philosophy.