Posthaste: While the S&P500 keeps hitting new highs, these Canadian blue chips are weighing down the TSX index

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The S&P 500 and Nasdaq indices have been hitting a series of record highs recently, but the TSX index continues to languish more than 1,300 points lower than its all-time high reached earlier this year just before the pandemic sent the bulls stampeding out of the market.

The domestic market index stands at just over 16,617 points this year, still shy of the 17,944 all-time record seen in February.

The main TSX index is now nearly 3 per cent shy of erasing its losses for the year, after falling 34 per cent by the late March. In contrast, the S&P 500 is now up 11 per cent for the year, after falling 27.67 per cent for the year by late March, according to data gleaned from Yahoo Finance.

While the S&P/TSX Composite Index has grown 6.33 per cent in the current quarter, it has been an uneven recovery for the most part this year, with Shopify Inc. (up 157 per cent) and Barrick Gold Corp. (+57 per cent) doing the heavy lifting and adding about 800 points to the index, according to Bank of Montreal research.

The performance of the various sectors mirrors the real-life performance of these industries: The S&P Capped Information Technology Index has expanded more than 42 per cent year-to-date, with the S&P TSX Capped Energy index at other end of the spectrum, down almost exactly more than 42 per cent. The S&P/TSX Capped Materials Index surged around 22 per cent year-to-date, with S&P/TSX Global Gold Index up nearly 38 per cent.

But there are plenty of laggards: The S&P/TSX Capped REIT Index is down 21 per cent, S&P/TSX Capped Health Care Index has fallen 32 per cent, S&P/TSX Capped Real Estate Index is 19 per cent in the red, and the S&P/TSX Capped Financial Index is 13 per cent lower.

In reality, a number of TSX blue-chips are weighing down the index. These include Bombardier Inc. (-76 per cent), Cineplex Inc. (-73 per cent), Air Canada (-66 per cent), Suncor Energy Inc. (-48 per cent), RioCan Real Estate Investment Trust (-39 per cent), Teck Resources Ltd. (-35 per cent), Gildan Activewear Inc. (-30 per cent), Blackberry Inc. (-24 per cent), Canopy Growth Corp. (-21 per cent), Manulife Financial Corp. (-21 per cent), The Bank of Nova Scotia (-20 per cent), Nutrien Ltd. (-17 per cent), Enbridge Inc. (-13 per cent), Rogers Corp. (-12 per cent), BMO research shows.

To be clear, the S&P 500’s new record also masks weaknesses in the stock performance of a number of major American household names.

“It’s well-known that the comeback has been narrowly based, led especially by just a few high-flying tech stocks. But, just as an illustration of the extent to which much of the rest of the market is lagging, consider these… household names below which are all still down by at least double-digits so far this year. Note the diversity of names,” Douglas Porter, chief economist at BMO, wrote in a note this week.

Some of the biggest American brands deep in negative territory include American Airlines (down 58 per cent), Boeing (-49 per cent), General Electric (-44 per cent), Exxon Mobil Corp. (-41 per cent) and Bank of America (-29 per cent).

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Gold fuels rally in junior mining that has the TSX Venture on fire

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“Everything goes with the metal price,” Kerry Smith, an analyst at Haywood Capital Markets, said. “The (gold) metal price has improved and some investors are prepared to take on more risk and they’re prepared to own the exploration companies.”

Smith speculated that some generalist investors who made money on senior gold producers are “recycling their profits” by reinvesting in smaller-cap junior miners.

He noted the TSX-V “has just gone straight up like a stick, it’s incredible,” but added that the index remains far off its 2011 level above 2,400.

That year also marked the end of the last bull cycle for gold. For a roughly six-year period between mid-2013 and mid-2019, the price of gold remained largely rangebound between US$1,150 and US$1,350.

But gold prices began steadily climbing last summer, driven by declining global interest rates, a weakening U.S. dollar and general economic uncertainty. Since January, gold prices have risen 27 per cent and are now hovering close to the US$2,000 per ounce benchmark.

Meanwhile, exploration budgets have largely tracked the price of gold, according to an analysis done earlier this year by S&P Market Global Intelligence, which found that budgets remain far off their 2011 peak and declined more than any other commodity in 2019.

“There are no major gold discoveries on our list in the past three years, and only 25 in the past decade,” the S&P report said.

The scarcity of new gold discoveries in the past decade has now magnified demand for junior gold mining companies with strong projects, McPherson said.

“We’ve starved the exploitation space for so long, and a lot of majors don’t have the exploration projects lined up,” he said. “That’s why you see investors putting so much interest in the junior space.”

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