Canada’s major banks, known as the Big Six, currently trade at elevated price-to-earnings ratios compared to historical averages.The average P/E ratio for these institutions stands at 16.5, significantly higher than the two-decade average of 11.Even the cheapest bank among them, Bank of Nova Scotia, is priced well above its historical norms.

This valuation surge has been driven by strong profitability despite challenges from fintech competition and a sluggish economy affected by tariff uncertainties.

Over the past year, the S&P/TSX banking index has risen 64% (adjusted for currency), outperforming the Roundhill Magnificent Seven ETF, which tracks U.S.tech giants.Canadian investors hold nearly a quarter of the value in the S&P/TSX Composite Index through bank stocks.However, fund managers remain divided on whether this rally can continue, with 58% holding for further gains and 42% reducing exposure.

The article also notes that short sellers who bet against Canadian banks faced massive losses during the 2016 housing market downturn, and current short interest in Big Six stocks is at its lowest level in years.