Canada's Prime Minister, Stephen Harper, gives his victory speech after collecting a majority government at the Convention Centre in Calgary. Monday May 2, 2011.
Credits: DARREN MAKOWICHUK/QMI AGENCY
"Markets tend to prefer the known versus the unknown," BMO Capital Markets deputy chief economist Doug Porter said the morning after Prime Minister Stephen Harper and his party picked up 167 seats for a majority mandate.
"This is because investors generally dislike uncertainty, and the outcome promises a stay-the-course policy path, including lower corporate income tax rates and political stability for another four years," TD echoed in a note.
Porter said the unprecedented NDP surge to official opposition status likely doesn't bother investors. A separatist party, the Bloc Quebecois, held that role in 1993 and markets were able to deal with it back then, he said.
The election outcome pushed the loonie up overnight Monday toward $1.06 US before sliding to $1.04 on the back of commodity prices Tuesday.
Both BMO and TD said the Conservatives' March budget is now expected to pass with only minor tweaks.
The Tory plan to wipe out the deficit within four years should go ahead as long as Harper and his team keep their word to restrain spending, TD said.
Big-ticket election promises, such as new family tax cuts and enhancements to tax-free savings accounts, aren't expected until 2014 at the earliest.
The corporate tax rate will also likely head down to 15% in January, much to the chagrin of NDP Leader Jack Layton.
The move will give Canada the lowest corporate tax rate of any G7 country, which will help attract investment and bring long-term economic benefits, TD said.
Investors may also be breathing a collective sigh of relief because NDP and Liberal climate change policies were perceived as potentially damaging to the oil and gas sector.
Election results aside, some of the biggest threats to Canada's economic prosperity come from outside its borders.
"So while the stability embedded in the election results are market supportive, few are likely to pop champagne corks in today's trading," TD said.
Indeed, the movement on the S&P/TSX Index Tuesday highlights the fact that markets in Canada are fuelled more by global commodity and corporate movements than by domestic partisan politics, Porter said.
The S&P/TSX Composite Index closed 242.14 points, or 1.74%, lower at 13,692.37.