U.S. vote is likely to bump Canadian stocks

Elections in America often impact S&P/TSX

Canadian stocks tend to sell off on a change in the White House, regardless of the winner, with the S&P/TSX Composite Index tumbling in the aftermath of eight of the past nine U.S. elections, according to data compiled by Bloomberg.

Yet the longer term outlook remains positive with a rebound in energy stocks, which represents 21 per cent of the index, expected to keep fuelling the developed world’s best-performing equity index, according to analysts and investors.

“This is going to be another buying opportunity as we’ve seen some nervousness bleeding into the markets,” said Hans Albrecht, fund manager at Toronto-based Horizons ETFs Management Canada Inc. which has about $5.86 billion in exchange-traded products.

“This is one election where people are truly confused about the two candidates. But it’s also just an election. That’s what leads me to believe the market will sort it out, and then we go back to TINA — There Is No Alternative.”

The S&P/TSX has posted a cumulative loss in the first five trading days immediately following eight of the last nine elections stretching back to 1980 with the average retreat 1.9 per cent, according to data collected by Bloomberg.

By the end of the election year,

This is one election where people are truly confused about the two candidates. But it’s also just an election. That’s what leads me to believe the market will sort it out.

the index tends to retrace some of those losses, posting an average 0.9 per cent decline.

Adding in non-election years, the index has gained an average 2.1 per cent from November to year-end since 1980.

Still, this is no typical election with Republican candidate Donald Trump vowing to tear up the North American Free Trade Agreement, which has been a boon to the Canadian economy, and Hillary Clinton opposed to trade deals that don’t create jobs.

A presidential election win Trump would reduce the value of the S&P 500 Index, the U.K., and Asian stock markets by 10 per cent to 15 per cent, according to economics professors Justin Wolfers and Eric Zitzewitz in a paper released by Brookings.

The outlook for company earnings offers significant ballast to the benchmark Canadian gauge, which has advanced 12 per cent so far.

The S&P/TSX rose 0.3 per cent to 14,644.20 at 9:50 a.m. in Toronto.

While crude has given back some of its gains in recent weeks, prices are up almost 75 per cent from the 13-year low in February.

Analysts see energy producers poised to deliver a five-fold profit increase in 2017 on the back of this rebound, according to data compiled by Bloomberg.

“There’s an awful lot of rhetoric in political campaigns and sometimes the first reaction from voters is ‘Oh my god, they’re going to implement all of their commitments and promises,’ which will scare markets a bit,” Tom Caldwell, chief executive at Caldwell Securities Ltd., said.

His firm manages about C$1.5 billion. “And then people realize it’s just election talk, and it’s actually difficult to get anything done.”