For investors, Canada is a bit of a conundrum. On one hand, the economy is limping along; on the other, the Toronto Stock Exchange (TSX), Canada’s main stock index, continues to be one of the best performing stock markets on the planet.
Over the last three years, the TSX has advanced 73.5%. Over the same time frame, the S&P 500 has rallied 67%. A sizeable difference. But, over the last two years, the discrepancy has increased, with the TSX growing 56% compared to the S&P 500’s 35% gain. This represents one of the biggest two-year gains in history, including the dot-com boom and the rebound from the 2009 Financial Crisis.
The Toronto Stock Exchange is the bigger winner over the last year, too, increasing 30% versus the S&P 500 gain of just 20%. On a year-to-date basis, the Canadian index is up 11%, slightly better than the S&P 500, which is up nine percent.
Keep in mind that this comes at a time when trillion-dollar, S&P-500-listed artificial intelligence (AI) and technology stocks, are hogging the limelight. The TSX is also trouncing its global peers while dealing with serious economic headwinds.
Economic Headwinds Continue to Weigh on Canada
The Canadian economy is in a technical recession, with Statistics Canada announcing that first-quarter gross domestic product (GDP) slipped 0.1% on an annualized basis. Optimistic analysts were looking for Canadian first-quarter GDP to grow 1.5%. In the fourth quarter of 2025, real GDP decreased 0.2%. Two consecutive quarters of declines is the definition of a technical recession.
Canada is also more than a year into a trade war with the U.S. The U.S. has, not surprisingly, decided not to extend the Canada-U.S.-Mexico Agreement (CUSMA). On the plus side, the free-trade deal doesn’t expire for another 10 years, and the U.S. has not made any overtures to actually withdraw from the agreement either.
Which TSX Sectors Are Leading the Market?
Despite a weak economy and ongoing uncertainty with the U.S., the TSX is doing exceptionally well, juiced in large part by the energy (oil and gas, pipelines), basic materials (gold, silver), and financial (banks, insurance) sectors. Together, these three sectors make up almost 70% of the entire Toronto Stock Exchange.
The TSX financials sector, which accounts for more than 36% of the index, has been bullish. It’s up approximately 23% in 2026 and more than 50% on an annual basis. TSX energy sector stocks, which account for more than 16% of the index, have registered year-to-date gains of more than 30%, or roughly 45% on an annual basis.
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