3 reasons why Canadian stocks could have another banner year in 2026

2025 will likely go down as another impressive year for Canadian equity investors. With a current yield of almost 30% this year, the TSX could post another year of gains against the US indices (up around 18% at the time of writing). That means global investors who increased their exposure to Canadian equities have performed much better.

I think there are certain catalysts that could lead to similar returns in the coming years. Here are some key reasons why I think Canadian stocks will continue to rise in 2026 and beyond.

Ratings are important

The Canadian stock market has soared higher this year and has continued to post impressive gains in recent years. Despite these gains, the overall TSX index now trades at a price-to-earnings ratio of about 20 times. Compared to the S&P 500, which is closer to 25 times, that’s a material discount.

I think 2026 could be a year when investors look for the best value wherever they can find it. And given the many similarities between the Canadian and US markets, I think global investors will look to exploit any kind of valuation gap between the two. That doesn’t mean the clear currency gap between the two countries makes Canadian stocks look more attractive.

In my opinion, 2026 will likely bring more of the same, although perhaps not in the same quantities. My base case is a decline in both economies, although I think Canada could outperform the US market by experiencing a smaller decline.

A resource-rich economy that investors want a piece of

Diversification is important. Put yourself in the shoes of a wealthy American, Japanese or German investor. It’s a good thing to own stocks outside your region that offer meaningful and steady growth and operate in a political environment that is considered stable. Canada offers these features en masse and continues to offer investors exposure to certain sectors that may be more difficult (or expensive) to gain exposure in their core markets.

With an abundance of oil and gas, forestry, mining, real estate, financial and industrial sectors to invest in, there is no shortage of diversification offered by investing in the TSX as a way to capitalize on global commodity trends.

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

Stability is key

Talking about uncertainty.

With so much trade (tariff), geopolitical and macro uncertainty driven by the Trump administration, I think US investors in particular will want to look at comparable developed markets with relatively stable leaders at the helm.

So far, Prime Minister Mark Carney has proven to be a very strong leader. We will see how his policies will ultimately develop over the next four years. But for now at least, this is a government that appears to be taking a balanced policy approach. I think the markets appreciate the certainty he brings, and his level-headed approach to dealing with other world leaders who have not been as progressive.