Carney Keys a Canadian Comeback Story

Editors’ Note: MarketMinder Europe prefers no politician nor any party. We assess developments for their potential economic and market effects only.

The results are in! Mark Carney and his Liberal Party have officially won Canada’s late-April general election, completing one of the biggest political turnarounds in recent history. After trailing by over 20 points in the polls earlier this year, Canada’s Liberal Party won 43.7% of the vote, beating the opposition Conservative Party’s 41.3%, which translates to 168 seats to the Conservatives’ 144.^[i] That is enough for a victory but not enough for a majority government, which extends Canada’s status quo since 2019.^[ii] In our view, this is fine enough for markets, which can move forward with less uncertainty.

We will omit a political post-mortem here, as several outlets we follow already dived into why popular support flipped so quickly and why Conservative leader Pierre Poilievre, the presumptive prime minister this past winter, lost his seat and risks losing his leadership post.^[iii] The short answer we have seen is tariffs, with Canadian voters seemingly preferring Carney’s economic credentials as former Bank of Canada (BoC) and Bank of England (BoE) head, as well as his proposed approach to trade talks and the Trump administration’s rhetoric about Canada becoming the 51^st United State of America.^[iv] Societally, all of this may be interesting and significant, but our research suggests markets view it only as sociology—outside the factors we find affect earnings and returns.

For stocks, we see a few important things. One, investors can now move on knowing which party and leader will be setting the agenda and shaping policy. The uncertainty we observed around former Prime Minister Justin Trudeau’s resignation has now seemingly disappeared. First we got the new Liberal leader—Carney—then an election date, and now results.^[v] Businesses can now grasp the lay of the land and go about their day-to-day with more clarity. Regardless of the winner, our research suggests this is typically a positive.

Two, Carney will likely preside over a minority government. In Canada’s Parliament, it takes 172 seats for a majority, leaving Carney three short.^[vi] This likely forces him to court support from smaller parties (e.g., the New Democratic Party, which once governed with Trudeau, or the Bloc Québécois) or the Conservatives to pass legislation.^[vii] Given Carney and Poilievre’s similar policy goals, the latter doesn’t seem impossible to us, but the devil is always in the details, and political interests sometimes argue against compromise.^[viii]

As a result, we wouldn’t pencil in all of Carney’s proposals, which include broad tax cuts, public investment initiatives and a reduction of internal trade barriers, passing exactly as outlined.^[ix] Years of experience tell us political gridlock, which Canada will have, tends to water down policy. But given Canada’s economy was already feeling a pinch from higher interest rates before tariffs took effect (most Canadian mortgages there are floating-rate)—and given its economic vulnerability to US tariffs—some attempt at fiscal stimulus looks quite likely.^[x]

But, in our view, a trade deal with the US to ease the tariff burden looks like priority one for Carney. Whilst he talked extremely tough on the campaign trail, likely helping cement his victory, he has also pledged to address some of President Donald Trump’s gripes, including raising military spending.^[xi] The two have already sat down and opened talks this week. Negotiations might look tense, but we think a deal looks entirely possible here, a potential relief for markets on the tariff front.

For markets, trade progress and extension of the status quo are probably good enough, in our view. We doubt Canada trounces global stocks, given its tight ties to the US economy and heavy energy industry exposure, but we think it will likely do fine when the global bull market (long period of generally rising equity prices) reasserts itself in earnest after this painful correction (sentiment-driven decline of around -10% to -20%).^[xii]

We see a high likelihood headlines will tout Carney himself as good for markets, given his reputation as a wise, stable, expert technocrat given his resume.^[xiii] We don’t buy it, and this has nothing to do with Carney as a person or his record. Simply, our research finds markets don’t move on politicians’ personalities. Just as we thought Carney wasn’t inherently bullish or bearish for Canadian stocks as its central bank chief, or for UK stocks as BoE chief, we don’t think he himself is inherently bullish or bearish as head of government. All these entities rely on groupthink via voting committees, and we find it is always the policies and how they relate to expectations that matter, not the people shaping them.