The U.S. may be the world’s biggest economy and Canada’s largest trading partner, but when it comes to the stock market, the TSX, which is Canada’s main stock index, continues to outperform its much larger peer.
There are still seven weeks left in 2026, but the TSX is on pace to outperform the S&P 500, the most popular stock market tracking index in the U.S., for the second consecutive year. In fact, the TSX is on its longest stretch of outperformance, relative to the S&P 500, in two decades.
In 2025, the TSX rallied an impressive 27.37%, or more than 30% when including dividends. Over the same period, the S&P 500 advanced 16.4%, or a total return of approximately 18% when including dividends.
So far, in 2026, the TSX has climbed 14.5% versus 9.9% for the S&P 500. Over the last two years, the disparity is even more pronounced, with the TSX growing 46.2% compared with the 25.9% gain on the S&P 500.
This big outperformance comes at a time when the Canadian economy is facing headwinds from tariffs with the U.S., ongoing economic uncertainty, and higher interest rates.
Why Are Canadian Stocks Outperforming American Stocks?
Many thought the trade war with the U.S. would impede the TSX, but the opposite has taken shape. Rather than Canadian stocks selling off, investors continued to pour money into the TSX.
It turns out, the TSX is outperforming the S&P 500 not necessarily in spite of U.S. President Trump’s policies, but because of them. The Canadian government has taken steps to push ahead with major infrastructure projects and diversify away from the U.S. That has given Canadian stocks a big boost. The war in Iran has also been a boon for Canada’s energy sector.
Case in point: The iShares Core S&P/TSX Capped Composite Index ETF, which is the largest Toronto-listed ETF that tracks Canadian stocks, continues to experience positive monthly net inflows.
This has led Bay Street analysts to remain bullish on Canadian stocks, with calls for the TSX to end 2026 at 37,000. If that’s where the TSX ends the year, it will represent an annual gain of 16%. That’s far better than the 5% to 10% gain conservative analysts were calling for back in December 2025.
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