3 Reasons Why Canadian Stocks Could Have Another Banner Year in 2026

2025 will likely go down as another impressive year for investors in Canadian stocks. With a current year-to-date return of nearly 30%, the TSX could have another year of beats relative to U.S. indices (up around 18% or so at the time of writing). That means that global investors who ramped up exposure to Canadian stocks have outperformed a great deal.

I think there are certain catalysts that could result in similar returns in the years to come. Here are a few key reasons why I think Canadian stocks will continue to climb in 2026 and beyond.

Valuations matter

The Canadian stock market has ripped higher this year and continued to produce impressive gains in years past as well. Despite these gains, the overall TSX index now trades at a price-earnings multiple of around 20 times. Compared to the S&P 500 at closer to 25 times, that’s a material discount.

I think 2026 could be a year in which investors look for the best value, wherever they can find it. And with so many similarities between the Canadian and U.S. markets, I do think global investors will look to play any sort of valuation gap between the two. That’s to say nothing of the clear currency gap between the two countries that makes Canadian stocks look more attractive.

In my view, 2026 is likely to bring more of the same, though perhaps not in the same quantities. My base case is for a drawdown in both economies, though I think Canada could outperform the U.S. market by declining by a lesser amount.

A resource-rich economy investors want a piece of

Diversification matters. Put yourself in the shoes of an affluent American, Japanese, or German investor. Owning some stocks outside of your locale that provide meaningful and steady growth, and operate in a political environment that’s seen as stable is a good thing. Canada provides these traits in droves and continues to provide investors with exposure to certain sectors that may be more difficult (or more pricey) to gain exposure to in their core markets.

With a plethora of oil and gas, forestry, mining, real estate, financials and industrial sectors to invest in, there’s no shortage of diversification provided by investing in the TSX as a way to play global commodity trends.

And with a relatively weak Canadian dollar relative to historical levels, this could be an opportune time to play some currency appreciation in the CAD. It’s all relative, and in this world of uncertainty, Canada looks like a place to invest.

Stability is key

Speaking of uncertainty.

With so much trade (tariff), geopolitical and macro uncertainty driven by the Trump administration, I think U.S. investors in particular want to look at similar developed markets with relatively steady heads at the helm.

Thus far, Prime Minister Mark Carney has proven to be a very strong leader. We’ll see how his policies ultimately shape up over the coming four years. But for now, at least, this is an administration that appears to have an even-keeled approach to policy. I think markets like the certainty he brings to the table, and his level-headed approach to dealing with other world leaders who haven’t been so forward-thinking.

The post 3 Reasons Why Canadian Stocks Could Have Another Banner Year in 2026 appeared first on The Motley Fool Canada.

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