Canadian Stock Market Outperforms US Peers, Fueled by Gold Surge

Canadian Benchmark Index's Stellar Performance

Despite persistent global trade tensions and a weakening economy, Canada's primary stock market benchmark, the S&P/TSX Composite Index, outperformed its US counterpart in the first half of the year, driven by record gold gains. As of June 30th, the S&P/TSX Composite Index was up 8.6% year-to-date, surpassing the S&P 500's 5.5% gain over the same period. In US dollar terms, the Toronto index rose 15%, comparable to other gold-heavy global indices.

"There's no question that this was driven by gold," said Sadiq Adatia, chief investment officer at BMO Asset Management Inc. As investors flocked to gold and precious metals mining stocks to hedge against some of the risks posed by President Trump's tariff threats and Middle Eastern geopolitical tensions and conflicts, the Canadian benchmark benefited from this trend. "You need assets that can 'bulletproof' a portfolio, and gold is the best choice," Adatia stated.

Precious Metals Contribute Half the Gains

As of June 18th, gold and silver stocks contributed half of the S&P/TSX Composite Index's gains. Scotiabank analyst Simon Fitzgerald-Carrier wrote in a report released that day that this was an "extraordinary" rally, "driven by high uncertainty surrounding US tariffs and their potential impact on economic growth."

Of the top ten gainers in the first half of the year, four were precious metals stocks, including Agnico Eagle Mines Ltd. and Wheaton Precious Metals Corp. Furthermore, most of the index's top ten performers were precious metals mining companies, with Lundin Gold Inc. leading the gains with nearly 135%.

Second-Half Outlook

As geopolitical and trade risks waned at the end of June, gold prices fell. The question now is whether the gold-driven rally will fade. BMO's Adatia believes that gold will not perform as well in the second half of the year as it did in the first half, as many of the ambiguities and uncertainties faced earlier have subsided.

Energy Sector Drags on Earnings

Bloomberg Intelligence strategist Gillian Wolff wrote in a June 11 report that S&P/TSX constituents' revenue forecasts have declined "significantly" since April, and the index's substantial exposure to the "struggling energy sector" is disproportionately dragging down overall forecasts.

Valuation Advantage and Growth Opportunities

However, Lesley Marks, chief investment officer of equities at Mackenzie Investments, points out that there are growth opportunities in Canadian stocks beyond the gold boost. She states that global investors are pouring money into the Toronto Stock Exchange because of its higher weighting in materials, energy, and financial sectors.

Marks adds that Canada's new Prime Minister, Mark Carney (Note: This is incorrect, and reflects information from the original text. It should be Justin Trudeau), is "advocating a very pro-investment, pro-growth, and economically-centric mission." She noted that the S&P/TSX Composite Index has a price-to-earnings ratio of 17x, significantly lower than the S&P 500's 24x. "I think there's a fundamental narrative for Canadian stocks, as well as a valuation narrative, because of the policy changes from our government," Marks said.

Important Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice. Investors should consult a qualified financial advisor before making any investment decisions. Consider the impact of inflation, interest rates, and global political events on your investment strategy. Diversification and proper risk management are crucial for long-term investment success.