Carney Keys a Canadian Comeback Story

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

The results are in! Sort of. With some races still too close to call, Mark Carney and his Liberal Party are on track to win Canada’s general election, completing one of the biggest political turnarounds in recent memory. After trailing by over 20 points in the polls earlier this year, the Liberals are tracking at 43.7% of the vote, beating the Conservatives’ 41.2%, which currently 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. In our view, this is fine enough for markets, which can move forward with less uncertainty.

We will leave the political post-mortems to other outlets, which are diving 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. The short answer here is “tariffs,” with the public seemingly preferring Carney’s economic credentials as former Bank of Canada and Bank of England 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. Societally, all of this may be interesting and significant, but to markets it is sociology—outside the factors affecting earnings and returns.

For stocks, there are 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 triggered by former Prime Minister Justin Trudeau’s resignation has now chipped away entirely. First we got the new Liberal leader—Carney—then an election date, and now results. Businesses can now grasp the lay of the land and go about their day-to-day with more clarity. Regardless of the winner, this tends to be a positive.

Two, pending the remaining outstanding seats, Carney will preside over either a minority government or a teensy, tiny majority. In Canada’s Parliament, it takes 172 seats for a majority, leaving Carney four short currently. Given the Conservatives surprised pollsters by outperforming in Toronto suburbs, a majority looks like a tall order, likely forcing Carney to win 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. Given there wasn’t much daylight between him and Poilievre on the policy front, the latter doesn’t seem impossible, but the devil is always in the details, and political interests sometimes argue against compromise.

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. Gridlock, which Canada will have, tends to sand things down. But given Canada was already feeling a pinch from higher interest rates before tariffs took effect (most mortgages there are floating-rate, not fixed, making higher rates more of an immediate pressure on households than in the US)—and given its economic vulnerability to US tariffs—some attempt at “fiscal stimulus” looks quite likely.

But a trade deal with the US to ease the tariff burden looks like priority one for Carney. While he talked extremely tough on the campaign trail, helping cement his victory, he has also pledged to address some of President Donald Trump’s gripes, including raising military spending. Negotiations might look tense, but a deal looks entirely possible here, helping markets get more relief on the tariff front.

For markets, trade progress and extension of the status quo are probably good enough. Canada may not trounce global stocks, given its tight ties to the US economy and heavy energy industry exposure, but it should do fine when the global bull market reasserts itself in earnest after this painful correction.

Some will inevitably say Carney himself is bullish, given his reputation as a wise, stable, expert technocrat given his resume. We don’t buy it, and this has nothing to do with Carney as a person or his record. Simply, markets don’t move on politicians’ personalities. Just as Carney wasn’t inherently bullish or bearish for Canada as its central bank chief, or for the UK as its central bank chief, he himself isn’t inherently bullish or bearish as head of government. All these entities are groupthink machines, and it is always the policies and how they relate to expectations that matter, not the people shaping them.