As investor concerns over U.S. market volatility intensify, a wave of trading known as "Sell America" is quietly gaining momentum, prompting capital to seek more stable havens and causing the Canadian stock market to exhibit a relative advantage not seen in two decades. The Canadian stock market has just recorded its best annual performance relative to U.S. stocks in twenty years, with the S&P/TSX Composite Index surging 28% last year, far surpassing the S&P 500's 16% gain. This trend has continued into the start of 2026, with the Canadian benchmark index rising 3.7% so far, outperforming the 1.7% gain in U.S. stocks. Money managers are betting that this outperformance will persist, encouraging investors to shift to less volatile alternative markets amid turbulence in the U.S. market.
Market observers believe that the Trump administration's escalating attacks on the Federal Reserve and its Chair, Jerome Powell, represent the most significant potential source of disruption for U.S. assets. Strategists Hugo Ste-Marie and Jean-Michel Gauthier at Bank of Nova Scotia pointed out that this situation could reignite a mild version of the "Sell America" trade that emerged last April, leading to higher U.S. Treasury yields, underperformance of U.S. stocks, and a weaker U.S. dollar. The resurgence of this "Sell America" trend could exert new pressure on the U.S. dollar and further suppress the performance of U.S. equities. Seth Meyer, Global Head of Client Portfolio Management at Janus Henderson Investors, warned that global investors are beginning to demand a higher risk premium for holding U.S. assets, and that near-term market volatility will depend on whether the U.S. Congress or Treasury can once again temper the administration's aggressive rhetoric. Canadian Markets Become the Preferred Safe Haven Amid the market turbulence, Canadian assets are increasingly being viewed as a safe harbor by investors. Brian Madden, Chief Investment Officer at First Avenue Investment Counsel, noted that the Canadian dollar is structurally undervalued against the U.S. dollar, which strengthens the case for hedging U.S. dollar exposure. He emphasized that the U.S. executive branch appears intent on undermining the credibility and independence of the central bank, making the logic for buying Canada even more compelling. Laura Lau, Chief Investment Officer at Brompton Funds, stated that while the U.S. remains the world's most competitive economy, its competitiveness is declining. She noted that other countries are beginning to realize they have been letting the U.S. have an advantage and are now catching up. Lau is particularly bullish on Canadian gold mining stocks like Agnico Eagle Mines Ltd. and European defense stocks such as Rheinmetall AG. Fed Independence Erosion Triggers Risk Premium Reassessment The increasingly tense relationship between the Trump administration and the Federal Reserve is at the core of current market anxiety. In a report on Monday, Janus Henderson's Seth Meyer wrote that as the administration's rhetoric escalates, the risk premium demanded by global capital for U.S. assets is rising. This uncertainty stemming from political risk is directly fueling capital outflows. Analysts at Bank of Nova Scotia explicitly mentioned in a client report that such political interference could trigger a chain reaction of rising U.S. bond yields and stock market underperformance, thereby reinforcing the logic of the "Sell America" trade. Despite the升温的避险情绪, not all strategists are pessimistic about the U.S. market. Sadiq Adatia of Bank of Montreal maintains a constructive view on U.S. equities. He believes that resilient consumer spending will drive stronger-than-expected economic growth in the coming quarters. Furthermore, he also disputes the notion that AI-related stocks are universally overvalued and headed for a bubble burst, indicating that divisions remain regarding the outlook for U.S. stocks.
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