Canadian investors ditched U.S. stocks at a record pace in July

After building up their holdings of U.S. equities in recent months, Canadian investors sharply reversed course in July and unloaded a record level of U.S. stocks and investment funds.

Canadians sold $31-billion worth of U.S. stocks and equity funds that month, according to Statistics Canada, the largest monthly net exodus from American markets ever, topping even the sudden pullback that occurred in March, 2020, when pandemic lockdowns triggered a deep, albeit brief, stock market crash.

The latest drop follows a stretch of strong demand for U.S. stocks in Canada. During the first six months of the year, Canadian investors snapped up a combined $78.1-billion worth of U.S. equities, Statscan said.

The divestment in July was mostly in shares of large cap tech stocks, the agency added, noting that the price of the S&P 500 Composite Index edged down that month.

Yet the ups and downs of U.S. stocks don’t fully explain the drop. While U.S. tech stocks did have a rough July – the Nasdaq Composite Index ended the month down 2.6 per cent – the tech-heavy benchmark posted worse monthly returns three times this year.

What’s more, securities data published by the U.S. Treasury Department show Canada was an outlier in July. Net purchases of U.S. equities by Canadians plunged US$59.6-billion in July, the steepest decline in nearly three years.

If Canada is removed from the picture, the rest of the world was a net buyer of US$62-billion of U.S. equities that month. (The Treasury and Statscan counts use different methodologies but net flows generally follow the same path over time.)

When it comes to discerning the motives of millions of investors, it’s impossible to explain a one-month swing.

While it’s intriguing to imagine a patriotic backlash in response to the U.S. announcing punishing new tariffs on Canada that month, it’s more likely domestic investors saw better opportunities elsewhere. Canadian energy and banking stocks in particular rallied strongly in July.

Decoder is a weekly feature that unpacks an important economic chart.