Canadian investors keep betting on Goliath, who is starting to look a bit wobbly.

Apparently unswayed by the cracks forming in the U.S. economy on top of soaring valuations on U.S. stocks, Canadian equity investors continue to direct their money stateside.

The latest data on investment fund flows show the enduring popularity of U.S. stocks after more than a decade of dominant performance.

In the first eight months of the year, investors sank $12-billion into Canadian exchange-traded funds that track the U.S. stock market, according to National Bank of Canada data.

Another $11-billion went into global funds, many of which are heavily tilted to the United States, with weightings of anywhere from 40 per cent to 70 per cent.

Cross-border securities transactions tell a similar story.

In the first half of the year, as the country found itself in U.S. President Donald Trump’s trade crosshairs, Canadians scooped up $125-billion worth of American securities, Statistics Canada reported last month.

“With non-resident investors aloof and Canadians adding foreign assets, the country has suffered a major capital drain,” Warren Lovely, chief rates and public-sector strategist with National Bank of Canada, wrote in a recent note.

The fact that the Toronto Stock Exchange remains a tough sell is a tad curious. The national wave of anger spawned by Mr. Trump’s belligerence has changed the way Canadians shop and travel. But not, evidently, how they invest.

Fair enough. Any authority on investing will tell you it’s a bad idea to let politics and emotion dictate financial decisions.

But the TSX is on a serious hot streak. Driven by gains in gold and bank stocks, the S&P/TSX Composite Index is up by 18 per cent year-to-date, easily outpacing the S&P 500 Index of American blue chips, which has gained 11 per cent.

Meanwhile, the case for caution toward U.S. stocks is building by the day. Consider three big red flags.

First, tariffs. There are growing signs in the economic data that tariffs are starting to bite. It has taken longer than most economists predicted, but tariffs can’t hide forever.

The effective U.S. tariff rate on all imports sits at around 17.4 per cent, up from 2.4 per cent at the start of the year. That’s the equivalent of an enormous tax hike on corporate America, which will come to bear on profit margins, consumer inflation or both.

Second, the U.S. job market is steadily weakening. The economy lost jobs in June for the first time in almost five years, while the jobless rate rose to 4.3 per cent – the highest since 2021.

Mr. Trump’s mass deportation campaign and reduced immigration have caused the number of foreign-born workers to decline by more than 800,000 over the past year. This raises the spectre of a labour supply shock.

And third, stock valuations. At record highs by some measures, U.S. stocks have no margin for error.

There is a very strong relationship between starting valuations and long-term performance in the stock market. The more richly priced they are at the outset, the worse the outcome.

“It pays to remember that higher valuations always beggar future returns,” writes Ben Inker, co-head of asset allocation at GMO.

This is exactly why several reputable names have warned about a weak decade to come in U.S. stocks.

Vanguard caused a stir in financial circles a few weeks ago when it flipped conventional investing wisdom on its head by recommending a U.S. portfolio of 70-per-cent bonds and just 30-per-cent stocks over the next 10 years.

That sounds drastic, but it builds on similar calls from big-name strategists at the likes of Goldman Sachs and Morgan Stanley.

There’s no need for long-term investors to bail on the U.S. But it’s as good a time as any to hedge one’s bets.

When giants fall, they fall hard.