Canadian Stocks on a Roll

MEDA -2014-02-24-Canadian Stocks on a Roll (header)

By David Pett

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Canadians are showing the world how to win this month: on the ice, on the slopes and also on equity markets.

Despite narrowly missing a record-setting 13th day of gains on Friday, falling 0.03% to 14,205.7, the S&P/TSX composite has risen 4.3% this year, making it the top-performing major index in North America.

“The TSX has had a really nice run lately,” said Colin Cieszynski, market analyst at CMC Markets Canada. “While eventually this will end, as nothing goes straight up forever, it appears that sentiment toward Canadian stocks has changed dramatically this year.”

Before Friday, the index had risen for 12 straight days, gaining almost 5.4% in the process. That has helped the large majority of its 244 members earn money for investors so far, with gainers outpacing losers by a two-to-one margin, as resource stocks continued their recent renaissance.

Mr. Cieszynski said the impressive start is welcome relief following a dismal few years for investors in Canada and reflects the Canadian equity market’s heavy weighting toward “late-stage” materials and energy stocks.

He said the TSX has historically underperformed U.S. indexes in the early stages of an economic cycle and outperformed in the later stages.


“This cycle has been no exception and we are all aware of how badly the TSX underperformed most world markets last year,” he said. “This year, however, we are starting to see the turnaround. Commodity prices and the TSX have started to rebound as the global economy finally seems to be getting some traction, improving the outlook for resource demand and the prospects for resource producers.”

John Nicola, chief executive at Nicola Wealth Management Inc. in Vancouver, said the TSX has clearly benefited from rising natural gas and gold prices this year, but has also gained from steady interest in the country’s financial sectors.

After slumping in January, the Big Six banks and the country’s largest life insurance companies have rebounded, rising 6% and 8%, respectively, this month.

Mr. Nicola said the rally in Canadian equities is not unexpected given how they have generally underperformed during the past two years, but thinks investors shouldn’t get too comfortable with their recent spoils.

“I think most of the gains are rational, but I don’t know if I’d read too much into it as a predictor of the future,” he said.

Other observers, however, point to the ongoing U.S. recovery and resurgent commodity markets as reasons to believe Canadian stocks can move higher still.

“This bull and the TSX still have room to run,” said Greg Newman, a senior wealth advisor at The Newman Group, a division of ScotiaMcLeod Inc. in Toronto.