There are records, and then there are records. Wall Street might be excited about the NASDAQ, Dow Jones Industrial Average, and S&P 500 hitting record levels, but the biggest American stock market indexes have nothing on the TSX.
Not only is the TSX at record levels, but Canada’s main stock index recently climbed for a 14th straight day, marking the longest streak of daily gains in more than four decades.
Will the TSX Record Streak Continue?
On Monday, October 25, the TSX closed the day up 0.3%, or 68.69 points, at a record closing high of 21,284.84. That represents the longest daily winning streak since 1979. It’s actually been quite a month for the TSX; since the start of October, the index has climbed 5.7%. The TSX is also up approximately 22% in 2021 and 32% year-over-year.
Many analysts expected October to be as volatile as September was, a month in which the TSX slide 2.6%. But that hasn’t been the case on the TSX. What’s behind the unprecedented bullishness?
The TSX is heavily weighted towards resource and financial stocks. Financials is the largest sector on the TSX, accounting for roughly one third of the total sector weights. The second biggest sector, Materials (which includes mining and agriculture), accounts for around 14% of the index. The Energy sector accounts for around 13% of the index.
Financial and resource stocks do well in the current economic climate, which is underpinned by rising inflation and interest rates. Financials are also expected to see growth on the heels of increased loan growth.
In September, Canada’s inflation rate soared to a new 18-year high of 4.4%. That’s the sixth straight month that inflation has been above the Bank of Canada’s one percent to three percent target.
The rising cost of transportation, shelter, and food were responsible for the biggest jump in the cost of living. If you own a vehicle, you already know this, since gas prices have exploded 33% over the last year. Food prices meanwhile are up 3.9% and shelter costs have gone up by 4.8%.
To curb soaring inflation, the Bank of Canada is going to need to step in and raise interest rates at some point. After all, the Bank of Canada’s objective is to keep inflation “low, stable, and predictable.” This (midpoint) target is formally defined by an “inflation-control target” of two percent.
What does this mean for investors? While the streak for longest winning days will eventually take a breather, the broader TSX is expected to continue its winning ways deep into 2022.
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