It’s not like Canada had a plan all along. Our oil wasn’t drilled in anticipation of a Strait of Hormuz closure. The critical minerals sector wasn’t developed because anyone saw a trade war coming. There was no grand design to position Canadian natural gas (LNG) as the alternative when Iranian aerial attacks this week caused extensive damage to the world’s largest gas plant in Qatar, targeted a refinery in Saudi Arabia, and forced the UAE to shut down gas facilities.  

If you’ve been watching the markets during the month of March, you’ve probably noticed something a little counterintuitive. While American investors are having a tough time — as of this writing, the S&P500 is down 3.6% year-to-date — Canadian portfolios are holding their own surprisingly well — up 0.5% year-to-date. The gap has only widened as the situation in the Middle East has deteriorated.

Canada isn’t outperforming because our policymakers had some brilliant foresight, or because Bay Street saw something that Wall Street didn’t. We’re outperforming because we happen to have a lot of oil, gas, gold and critical minerals — and right now, the world desperately needs these commodities. The TSX’s heavy weighting in energy and materials, which for years felt like a liability compared to the S&P’s big tech names, is suddenly the story.

There’s also a diplomatic dimension worth noting. Prime Minister Carney’s Indo-Pacific outreach, which a few weeks ago seemed like sensible diversification away from a difficult Washington, now looks considerably more important. Japan and Australia aren’t courting Canadian LNG out of goodwill — they need it. That’s a negotiating position Canada hasn’t had in a long time, and to his credit, Carney appears to be taking advantage of it.

There’s something else happening this month that has been particularly vexing. The buffoon-in-charge south of the border has been regularly making pronouncements that the conflict will end soon — as though someone is talking to someone — and the markets rally. Then, within hours or days, a missile hits something that matters, and it reverses. We’ve watched this cycle repeat itself enough times now that it’s starting to feel less like volatility and more like a kind of collective insanity. Markets want good news and then reality intervenes.

This isn’t totally irrational though — markets are supposed to price in new information as it surfaces. But what we’re seeing this month is something different. Equities are pricing in hope as if it were information. The gap between what is being said and what is actually happening on the ground has become wide enough to drive a truck through, and the whipsaw between those two things is what’s creating so much of the noise.

So, what does this mean for you?

In the short term, it means my client’s Canadian holdings are likely doing a little better than expected. Since last fall, I’ve been deliberatively reducing U.S. exposure (and other equities in general). We’ve built larger-than-usual cash positions in anticipation of a meaningful pullback. The catalyst turned out to be a war in the Middle East — but the conditions for a move lower were already in place. They are now more fully protected on the downside, either way.

As I’ve said so many times — we are invested for the long run. The portfolios I’ve built are designed to weather exactly this kind of volatility — to take us through the noisy headlines, and benefit from the structural tailwinds that Canada is currently experiencing.

Libby

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