Canada’s Big Six banks are soaring like AI stocks. Can it seriously last?
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- Big Six Canadian lenders rose an average of 67% (74% with dividends) over the past year, beating gold's 24% and Nvidia's 45%, and tacked on another 29% since January 1.
- The banks collectively posted $71 billion in net income over the past 12 months, up 14% year-over-year, with world-class returns on equity driven by wealth management, trading desks, and investment banking fees.
- Canada's banking regulator lowered the capital cushion requirement on Friday, freeing banks to deploy more cash toward new loans for defence, infrastructure, and AI projects.
- The group now trades at roughly 15 times expected 2027 earnings, well above the historical average of 11 times—a level the source describes as "rarely ever seen."
- Gabriel Dechaine, an analyst at National Bank Financial, said critics "have a hard time explaining what could derail" the rally despite stretched valuations and Canada's still-elevated unemployment rate.
- Barry Schwartz, CIO at Baskin Wealth Management, countered that "financials tend to do well when the markets are at all-time highs" and that the banks "aren't trading at SpaceX valuations."
- The USMCA review deadline of July 1 is rapidly approaching, with the U.S., Mexico, and Canada only beginning serious negotiations—introducing fresh trade uncertainty into the rally.
Why it matters: Investors are pricing Canadian banks at 15x forward earnings versus a historical 11x anchor—a level "rarely ever seen." If sentiment reverses, that premium evaporates, though $71B in net income gives these stocks a stronger cushion than Stantec and WSP Global, which fell roughly 35% after AI fears hit their sector.
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