3 Reasons a Donald Trump Presidency Is Bullish for the TSX

A Donald Trump presidency definitely creates uncertainty for Canada, but the TSX could be set to surge due to stronger U.S. growth, a weak Canadian dollar, and stronger oil prices. Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is an excellent way to play these trends.

| More on:
The Motley Fool

News of a Donald Trump presidency means a massive economic change of course for North America; in fact, billionaire Stan Druckenmiller, who only months ago stated gold was his largest holding, entirely sold his gold holdings and is now betting on economic growth.

As for Canada and the Toronto Stock Exchange, the TSX is currently trading at a fairly expensive 19 times 2016 earnings, which is above the 10-year average of 17.9. Canadian GDP is expected to grow by only 1.9% in 2017, and an upward revision in GDP and corporate earnings could help the TSX to support a higher valuation.

Could a Trump presidency cause this? Analysts at Bank of Montreal think it could be possible, providing the positive economic proposals from a Trump presidency (massive tax cuts and infrastructure spending) are implemented to a greater degree than the negative economic proposals from Trump’s platform (protectionist policies that could see restrictions on Canadian imports into the U.S.).

This outcome is likely. Congressional Republicans are overwhelmingly free trade, and since NAFTA has been in place for over 20 years, many U.S. manufacturers have parts of their manufacturing chain in Canada, making disentangling this difficult. CIBC also stated that Canada and the U.S. could enter an agreement with each other, without Mexico, and this could actually benefit Canadian businesses to an extent.

With this in mind, here are three ways the TSX could benefit from a Trump presidency and how to profit from it.

1. Improved U.S. growth

Exports to the U.S. are a huge economic engine for Canada, and this means that any improvement in the U.S. economy is a boost for Canadian exports, providing Trump’s more protectionist policies are watered down. About 76% of Canadian exports go to the U.S., making it a big driver of Canadian GDP growth and Canadian corporate earnings.

Trump is planning a massive set of tax cuts that are almost certain to provide an economic boost (at least in the short to medium term). Trump is significantly cutting both personal and corporate taxes, and BMO estimates that these cuts would reduce government revenues by $6 trillion over a decade. Having this money floating around in the economy instead will provide a major economic boost.

At the same time, Trump is planning massive infrastructure spending. This would be $500 billion of spending over five years. These proposals would likely lead to improved Canadian business activity.

2. A weak Canadian dollar

The Bank of Canada has stated that a weakening loonie is a key part of the Canadian economy making an adjustment from being an oil-based economy to a non-oil based export economy. A weak Canadian dollar makes exports more competitive by making Canadian goods cheaper in other currencies. It also benefits Canadian companies with U.S. dollar–based revenues.

A Trump presidency is likely to benefit the U.S. dollar. Trump’s tax and infrastructure plans as well as deregulation combined with deficit spending should work to strengthen the U.S. dollar. Interest rates are also likely to rise faster (due to more economic growth), which will in turn make the dollar stronger relative to the Canadian dollar.

3. Potentially stronger oil prices

Stronger U.S. economic activity will be good news for U.S. oil demand (the largest global consumer of oil), and Trump’s uncertain policy towards the Middle East and lack of support for the Iran deal could see Iranian oil production curtailed once again as well as higher oil prices due to Middle East uncertainty.

At the same time, Trump’s support of the Keystone XL pipeline is good news for Canadian oil producers, who would be able to receive higher prices for their heavy oil. While Trump is promising more U.S. production, U.S. oil producers are limited in how fast they can grow production due to high debt levels.

Overall, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is the best way to play these developments. TD has heavy U.S. operations, which should benefit from more U.S. growth, higher U.S. interest rates, and a weak Canadian dollar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Mancini has no position in any stocks mentioned.

More on Energy Stocks

construction workers talk on the job site
Energy Stocks

Best Stock to Buy Right Now: Baytex vs Suncor?

Suncor and Baytex stocks both look like solid companies offering growth and dividends. But which is the better buy?

Read more »

bulb idea thinking
Energy Stocks

3 Incredibly Cheap Energy Stocks to Buy Now

Energy stocks are trending upwards on the back of several key factors. And these three continue to be top cheap…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Should You Buy Freehold Royalties Stock for its 8% Yield?

Freehold Royalties is a TSX dividend stock that offers shareholders a forward yield of 8%. But is the energy stock…

Read more »

Muscles Drawn On Black board
Energy Stocks

Is Suncor Energy Stock a Good Buy?

Suncor is on a roll in 2024. Are more gains on the way?

Read more »

profit rises over time
Top TSX Stocks

3 Reasons to Buy Enbridge Like There’s No Tomorrow

Have you considered buying Enbridge (TSX:ENB)? Here are 3 reasons to buy Enbridge today for lasting growth and income.

Read more »

oil pump jack under night sky
Energy Stocks

Is CNQ Stock a Buy for its 4.5% Dividend Yield?

CNQ stock is one of the best options out there for dividend growth. But what about value? Let's take a…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Imperial Oil stock is in a precarious position, so what should investors consider as we head nearer to 2025?

Read more »

construction workers talk on the job site
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor Energy stock is trading at its decade-high on uncertainty in the oil market. Should you buy, sell, or hold…

Read more »