Canadian Equity Market Performance and Outlook

The Canadian equity market has a reputation for being relatively stable, but what does that mean for investors? The S&P/TSX Composite Index, which tracks the performance of the Canadian stock market, has historically been less volatile than its US counterpart.

Investors who have been in the market for a while may recall the 2015-2016 downturn, when the index lost nearly 20% of its value. However, the market has since recovered, and the index is now near all-time highs.

Despite its stability, the Canadian equity market is not immune to global economic trends. A significant portion of the market's performance is tied to the price of oil, which has had a major impact on the energy sector.

The energy sector has been a major driver of the market's performance in recent years, accounting for nearly 20% of the S&P/TSX Composite Index's value.

The TMX Group era began in 2001 when the Toronto Stock Exchange acquired the Canadian Venture Exchange, renaming it the TSX Venture Exchange in 2002. This marked the end of 123 years of the TSE being a Canadian stock exchange.

On May 11, 2007, the S&P/TSX Composite, the main index of the Toronto Stock Exchange, traded above the 14,000 point level for the first time ever.

The TSX was closed for an entire trading day on December 17, 2008, due to a technical glitch, a first in TSX history.

In 2011, the London Stock Exchange announced a merger with the TMX Group, which would have created a combined entity with a market capitalization of $5.9 trillion.

The Toronto Stock Exchange (TSX) is home to a wide range of companies, including the Big Five commercial banks in Canada. As of January 2024, the TSX had 1,811 listed issuers with a combined market capitalization of CAD $4.16 trillion.

The TSX is also home to a number of energy companies, including Enbridge, Suncor, and Canadian Natural Resources, all of which are part of the S&P/TSX 60 index. These companies represent a significant portion of the TSX's market capitalization.

Here are some of the top companies listed on the TSX, as of Q1 2024:

The Toronto Stock Exchange (TSX) is home to a vast array of companies, with over 1,800 listed issuers as of January 2024. This includes a mix of established players and new entrants, all vying for a spot in the Canadian market.

One of the most notable features of the TSX is its list of top issuers, which includes all of Canada's Big Five commercial banks. These institutions - Canadian Imperial Bank of Commerce (CIBC), Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Royal Bank of Canada (RBC), and the Toronto-Dominion Bank (TD) - make up a significant portion of the exchange's listings.

As of Q1 2024, the top index components by market cap in the S&P/TSX index include the following stocks:

The TSX is also home to a range of energy companies, including Enbridge, Suncor, TC Energy, Canadian Natural Resources, Imperial Oil, Pembina, and Cenovus. These companies are all part of the S&P/TSX 60 index, which tracks the performance of the 60 largest companies listed on the TSX.

TSX Listing Fees are a significant cost for companies looking to list on the Toronto Stock Exchange (TSX) or the TSX Venture Exchange. The fees range from $10,000 to $200,000 for the TSX and $10,000 to $70,000 for the TSX Venture Exchange. The amount is determined by the market value of the company at the point of listing.

Companies need to consider these fees when planning their listing on the TSX. The fees can be a barrier for smaller companies with limited resources.

The exact fee amount is tied to the market value of the company, making it a variable cost.

The S&P/TSX Composite Index is a capitalization-weighted equity index that tracks the performance of Canada's largest companies listed on the Toronto Stock Exchange (TSX). It's the equivalent of the S&P 500 index in the United States.

The index contains around 225 publicly traded Canadian companies, representing roughly 80% of TSX's entire market capitalization. As of January 2024, the total market cap of the index is over $3.32 trillion.

The S&P/TSX Composite Index is calculated by Standard and Poor's (S&P), and it's rebalanced on a quarterly basis in March, June, September, and December. The index is made up of 11 sectors, with the financial sector being the largest, comprising 30.9% of the index as of 2024.

The top 10 index components by market cap in the S&P/TSX index include Royal Bank of Canada, Toronto-Dominion Bank, Shopify Inc., and Enbridge, among others. These companies are the largest and most prominent in Canada, and they represent the country's economy.

To be included in the S&P/TSX Composite Index, companies must meet certain eligibility criteria, such as having a market capitalization of at least 0.04% of the index and sufficient liquidity. They must also qualify as Canadian, meaning they have been incorporated in Canada, have a primary stock exchange listing on the TSX, and have a substantial presence in the country.

Here is a list of the top 10 index components by market cap in the S&P/TSX index as of Q1 2024:

Investors can get exposure to the S&P/TSX Composite Index by investing in a fund that tracks the index, such as the iShares S&P/TSX 60 Index ETF (TSX: XIU), which holds the 60 largest companies in the index.

The Canadian equity market had a strong performance in the third quarter of 2024, with the Morningstar Canada Large-Mid Cap Index rising 12.17% and the Morningstar Canada Small Cap Index climbing 11.37%. This was the strongest quarter for Canada's main stock index in four years, clocking a 9.32% return.

The Bank of Canada's decision to cut interest rates by 75 basis points in June 2024 was a key catalyst for the recovery, particularly for the real estate industry. The rate relief also supported credit performance, contributing to the sector's strong performance.

The Canadian stock market was one of the best-performing markets globally in the third quarter of 2024, with the Toronto Stock Exchange (TSX) experiencing a significant rebound after being one of the worst performers in the second quarter.

The third quarter of 2024 saw a significant rebound in the Canadian stock market, with the Morningstar Canada Large-Mid Cap Index rising 12.17% during the quarter.

The Bank of Canada's decision to cut interest rates by 75 basis points in June 2024 was a key catalyst for this recovery. According to Jimmy Jean, vice president and chief economist at Desjardins Group, "The Bank of Canada cutting rates and signalling more cuts to come was a boon to the real estate industry, hence its position as a leader in the recovery."

The real estate industry led the recovery, with financial services stocks also performing well. As Jean notes, "The rate relief will help support credit performance."

The Canadian stock market's strong performance in the third quarter was also influenced by the global market's recovery. Jules Boudreau, senior economist at Mackenzie Investments, notes that "Generally, global stock markets did well in the third quarter, with gains driven by solid earnings, and the Federal Reserve's pivot towards rate cuts in the context of a weakening but still-solid US economy."

Here are some key statistics that highlight the Canadian stock market's rebound:

These statistics demonstrate the significant recovery in the Canadian stock market during the third quarter of 2024.

The fourth quarter is shaping up to be a volatile period for the Canadian market. Analysts expect Canada to underperform the US and other international markets.

A strong US economy and stabilization of China should keep global markets afloat, including Canada. Canadian equities, however, could be weighed down by a Trump victory in the US election.

Energy and materials are forecast to be favored by the current geopolitical environment, but some commodities like gold may be vulnerable to correction. Materials could be a drag on the Canadian market in the fourth quarter due to its high weight in Canada.

Recent gains in metals prices are seen as overdone, and any further deterioration in the Canadian economy could cause Canadian financials to give back recent gains.

The Bank of Canada Rate Cut has been a major factor in the Canadian stock market's rebound in Q3. The Bank of Canada's rate cuts helped to cool inflation and supported a broader economic recovery, positioning the market for a more optimistic outlook for the remainder of the year and beyond.

Canadian stocks posted big gains in Q3, with the Morningstar Canada Index returning a healthy 11.58% for the three months ending Sept. 30. The S&P/TSX composite index saw a 9.3% rise in the quarter, boosted by solid gains for real estate, financial, and technology stocks.

The case for lower interest rates is supported by key economic data, including lower inflation rates, a weaker labor market, and slowing economic growth. The Canadian market is pricing in a 25% chance of a 50-basis-point rate cut in October.

Some experts believe the odds of a jumbo rate cut are greater than 50%, citing the Canadian economy's anemic economic growth. Growth in the third quarter was likely well below what the Bank of Canada was projecting back in July.

The Bank of Canada is expected to announce a 50-basis-point rate cut at the upcoming meeting, as the Canadian job market has softened noticeably and headline inflation has returned to the 2% target. Housing costs remain elevated, but the case to maintain very restrictive monetary policy has diminished.