The S&P/TSX Composite Index rallied higher on Monday, May 30, marking the seventh consecutive session in which the index has closed higher. This marks the longest winnings stretch since October 2021, when the index went on a 14-trading-day streak.
The TSX has rallied 5.3% over the last 12 months but is down 1.4% year-to-date. That may not sound very good, but by comparison, the Nasdaq is down 11.7% year-over-year and down 22.5% year-to-date while the S&P 500 is 1.0% in the red year-over-year and down 12.8% year-to-date.
Why Is the TSX on a Roll?
The TSX and Canadian stock gains are being led by gains in energy, industrial, and financial shares. Stocks are also being juiced by news that recent COVID-19 flareups in China are under control with Shanghai also announcing a raft of economic measures to boost its slagging economy.
Investor optimism helped send crude oil prices above USD$120.00 per barrel—the highest levels since 2008. Oil prices are also advancing as Canadian and U.S. motorists gear up for the annual summer driving season. Not only are gas prices at record levels but stockpiles are at an eight-year low.
Post-pandemic recovery demand is also expected to help oil prices remain near $120 per barrel. This is, of course, good news for the TSX with the energy sector accounting for approximately 13.5% of the index.
The Industrials sector, which accounts for 11.7% of the index is also trending significantly higher. The sector includes diversified businesses in machinery, trucking, transportation, railroads engineering, construction, and building products and equipment.
The largest constituent on the TSX is the financial market, making up 28.6% of the index. All of Canada’s top banks reported strong fiscal first-quarter results, with aggregate earnings of the seven biggest banks up eight percent quarter-over-quarter and 12% year-over-year.
Canada’s banks are ranked as some of the most reliable in the world. With the Bank of Canada poised to announce another supersized rate hike in early June to 1.5%. It could soon be twice that as the central banks looks to get inflation under control. Not surprisingly, persistently higher interest rates mean earnings at Canada’s top financial institutions will remain robust.
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Rising interest rates and inflation are sending global stocks considerably lower, but the TSX is bucking this trend, with commodities, energy, and financials helping Canada’s largest stock index enjoy its longest rally in seven months. Whether this is the start of a bull run or it’s a bear-market rally, the trading experts at Learn-To-Trade.com can teach investors how to trade more confidently and profit more consistently.
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