Canada stocks could gain from U.S. midterm tariff shift

Key Points:

• Following the 2026 U.S. midterm elections, Canada's S&P/TSX Composite index rose 2.3%, its best one-day gain since March 31, reflecting optimism about improved U.S.-Canada trade relations under a Democratic-controlled Congress.
• Democrats gained control of Congress and are expected to challenge and potentially roll back tariffs imposed by the Trump administration on Canadian imports, which had negatively impacted Canadian stocks and trade.
• Canada heavily depends on the U.S. as its largest trading partner, with 76% of its exports going to the U.S. in 2024, including raw aluminum, car parts, and crude petroleum, making trade policy changes highly significant for its economy.
• Proposed Democratic measures, such as the BAD DEAL Act, aim to repeal tariffs imposed under the previous administration and refund duties paid, though the president still retains some authority over trade decisions.
• Investors are eyeing Canadian companies like Magna International, Linamar Corporation, Canada Goose, Molson Coors, and Algoma Steel Group as potential beneficiaries of tariff relief, alongside software firms like Descartes Systems Group, which could gain from more stable geopolitical conditions.