What's driving the TSX’s trillion-dollar run
Canada’s stock market has found its groove heading into the final weeks of the year. After surging more than 10 per cent in November, the S&P TSX Composite Index has rallied another three per cent so far in December.
The recent climb has capped off a remarkable rise since the stock market’s pandemic lows in March. Coming into Wednesday’s trading session, Canada’s benchmark index had added nearly $1 trillion in market value since bottoming out in the spring.
“The markets have been on a one-way ticket north since March,” David Rosenberg, chief economist and strategist at Rosenberg Research, said in a television interview Tuesday.
Indeed, massive stimulus from both governments and central banks has helped fuel markets higher. Rosenberg described quantitative easing, led by the U.S. Federal Reserve, as “the gift that keeps on giving.”
The TSX, though —which remains dominated by economically sensitive companies — began a fresh charge, as vaccine optimism rippled through the markets.
Since Nov. 9, when Pfizer Inc. first announced encouraging trial data for its COVID-19 vaccine, the TSX has advanced in 19 of 22 trading sessions – a whopping 86 per cent of the time.
The index’s 8.3-per-cent gain during that stretch has outpaced the advance on U.S. markets over the same period.
That’s because Canada’s rally has been led by hard-hit energy stocks and financials, which have lagged the market for much of the year. Collectively, those two industry groups make up 42 per cent of the Canadian market. By comparison, those sectors, combined, account for just 13 per cent of the S&P 500.
In the energy sector, stocks such as Suncor and Cenovus have rallied more than 50 per cent since early November. Financials such as Scotiabank and TD, meanwhile, have gained more than 20 per cent.
Cannabis stocks have also enjoyed a recent lift, helped by optimism surrounding legalization in the United States.
The TSX is now up more than three per cent for the year. And while it has not quite returned to its all-time high reached in February, it is just 305 points away from its record closing level on Feb. 20. As a reminder, the index sank 37 per cent from its February high to its March low.
Of course, the TSX’s advance this year would not be possible without outsized gains in the gold sector. Meanwhile, tech darling Shopify — which is now the most valuable publicly-traded company in Canada — has been the single biggest stock contributor, adding more than 650 points in value to the index.
But Canada continues to rely heavily on old economy businesses. For example, railroad stocks such as CP Rail and CN Rail have been the second and third largest point creators for the index this year.