These are the stock market sectors poised to benefit from the Carney era

Article content

The stock market roller-coaster since U.S. President Donald Trump unleashed his trade war has underscored just how much government policy can sway markets, both positively and negatively. While no one expects Prime Minister Mark Carney’s new Liberal government to be nearly as volatile as Trump’s, a host of campaign promises will soon evolve into policy and budget decisions that may give certain industries a boost. Here, the Financial Post gives investors a sense of which sectors stand to gain the most under the Carney government.

Article content

Article content

Article content

Financials

Article content

Article content

Financial companies are the single largest weighted sector on the S&P/TSX Composite Index, comprising about 30 per cent of the index. The performance of Canada’s big banks is driven by several factors, including the overall health of the economy, interest rates and inflation.

Article content

More broadly, the big swing factor for banks through an economic cycle is provisioning for credit losses, said Brian Madden, chief investment officer at First Avenue Investment Counsel Inc.

Article content

Article content

“As the macro environment deteriorates, they have to proactively provision for the anticipation of people defaulting on loans,” said Madden. “To the extent the Liberal platform is pro-growth and has fiscal stimulus in it via targeted spending and broad-based middle-class tax cuts, this is going to put money back in people’s pockets and should lower the bank’s provision for credit losses to the benefit of their earnings.”

Article content

A big category for banks is mortgage lending, which has been pretty tepid lately given affordability challenges and high interest rates, said Madden.

Article content

“Some of the Liberal campaign and platform is focused on trying to solve the housing crisis. For instance, eliminating HST on new construction,” said Madden. “To the extent that restokes demand for housing and new home building, that should benefit the banks via demand for mortgages.”

Article content

Article content

Infrastructure and housing

Article content

Article content

Carney pledged to “build, baby, build” in his election night victory speech, and during the campaign promised to create a $5-billion Trade Diversification Corridor Fund to diversify trade away from the U.S. and “accelerate nation-building projects at ports, railroads, inland terminals, airports and highways.”

Article content

The Liberals have also promised to double Canada’s current rate of residential construction over the next decade to reach 500,000 homes per year through a new federal entity called Build Canada Homes, which aims to build affordable housing at scale and provide financing to budget-minded homebuilders.

Article content

If these policies come to fruition, it will create an overall demand for infrastructure and construction, said Graham Priest, investment advisor at BlueShore Wealth and portfolio manager at Aviso Wealth.

Article content

“If you’re looking at new neighbourhoods, new roads, things along those lines, you’ve got the infrastructure that’s being put in place for those homes and neighbourhoods. You’ve got increased demand for lumber and all sorts of different resources,” said Priest.