TSX rallied to all-time highs this week, surpassing 21,800 during Friday trading
The Toronto Stock Exchange in the financial district of Toronto. Photo by Cole Burston/Bloomberg files The S&P/TSX composite index is finally getting its time in the sun after more than a decade of underperformance, rallying to all-time highs this week, surpassing 21,800 during Friday trading.
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The index had been climbing on soaring commodities, including oil, as well as on the backs of the financial and agricultural sectors, where stocks for heavyweights such as the Royal Bank of Canada, Enbridge Inc. and Canadian National Railway Co. have been on the rise.
The TSX is now up 2.7 per cent this year while the S&P 500 is down almost seven per cent and the Dow Jones is down five per cent.
Commodities are surging amid the Russian invasion of Ukraine, but the TSX’s recent outperformance is more than a war story to Greg Newman, a portfolio manager and senior wealth adviser at Scotia Wealth.
“We’re really a concentrated market in three areas: We are heavy energy, we are heavy materials and we are heavy financial, and those are three areas that have been forgotten about for a very long time, (and) have been under-owned.” he said, adding that Canadians had flocked to stocks on United States exchanges for years, though they have recently become too expensive.
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“There’s been this rotation to value … and it all really favours Canada,” he said. “You’re getting new investors that are rediscovering our markets and you’re getting local investors for the first time in five years.”
The rally has been accelerated by the conflict in Ukraine, but Newman believes it will be an enduring trend with more room to grow in energy stocks.
“There’s a whole game change here, and a lot of institutional investors don’t own Canada (stocks) … and they’re all kind of going the wrong way at the wrong time,” he said. “That traffic has got to come back … that will, I think, play out for a while, maybe for a couple of years.”
Kim Shannon, founder and co-chief investment officer at Toronto-based investment firm Sionna Investment Managers Inc., agrees that the pendulum is swinging to value stocks from growth stocks.
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“If I can say anything, it’s an inflection point,” she said. “We have reached bottom, brought inflation back … we haven’t seen anything like that in 40 years. Commodities are back, and there’s a war on. It’s a very different game.”
Shannon said the flip to value stocks will be seen in March stock performance trends, adding she also does not expect this to be a short-lived trend.
“We’re almost hitting quarter-end here, and I’m going to argue we’re going to see the big flip in the March data, and you’re going to see all those value managers have smoking hot numbers and all the growth players are going to have smoking terrible numbers,” she said.
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Article content But Barry Schwartz, chief investment officer at Toronto-based Baskin Wealth Management, said the current rally is little more than a flash in the pan.
“It’s a war-time index,” he said. “The top 30 holdings — aside from Shopify — 99 per cent of them are financial services, energy-related or commodity-based … and these are things that work well at the start of an inflation cycle and in a war. But these are not things that work well when that (cycle) reverses.”
Shopify Inc., once the TSX’s largest company by market cap, has fallen more than 60 per cent from its highs in November 2021.
“I don’t see how (companies like Shopify) could work well in a rising-rate environment,” he said. “And I’m optimistic that some of the commodity prices will start to fall off. I’m not saying oil is going back to $30, but I don’t think it’s going to hang around $130, either.”
• Email: shughes@postmedia.com | Twitter: StephHughes95
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