Canadian stocks show strong sector-wide gains, with two advancing for every one that has fallen this year
Canadian stocks have experienced a broad-based rally this year, unlike US equities, which have been driven by only a few names, according to BNN Bloomberg.
In Toronto, two stocks have advanced for every one that has fallen, revealing a strong foundation for the S&P/TSX Composite Index rally. An equal-weighted version of the index has risen 11 percent this year, outperforming its cap-weighted counterpart and the equal-weight S&P 500 Index in the US.
Mike Archibald, AGF Investments vice-president and portfolio manager, noted, “In Canada, you have had more opportunity within every sector to find names that have worked.”
In contrast, the S&P 500 has become heavily reliant on a few stocks, with “the highest weighting for the top 10 that we’ve ever seen,” according to Archibald. This concentration risk was evident when a downturn in a few top tech stocks caused the entire index to drop by as much as 1 percent.
Christine Poole, CEO and managing director of Globe Invest Capital Management, observed, “Breadth can stay thin for a while, but it also means that the market could be more sensitive to any sort of negative news and some sort of shock to the system. You’ve got a handful of stocks, maybe even one stock, leading the charge.”
In Canada, large firms like Shopify Inc., Toronto-Dominion Bank, and Bank of Montreal have actually held back the market. The Big 3 telecommunications stocks — BCE Inc., Rogers Communications Inc., and Telus Corp. — have also been significant drags.
Despite these challenges, the S&P 500 has outperformed the S&P/TSX Composite this year in both its equal-weight and cap-weighted versions. Investors who have underweighted the US market may have underperformed as the AI investing boom has propelled stocks like Nvidia higher.
However, strategists see more potential upside in the Canadian market. They expect the S&P/TSX Composite to gain 12 percent over the next 12 months, compared to a 6.5 percent gain for the S&P 500, according to Bloomberg data.
Philip Petursson, IGM Financial’s chief investment strategist, stated, “Relative to the S&P 500, the TSX is trading at a significant discount. It does have a fairly wide valuation gap relative to where it normally sits. You could see some catch-up.”
