S&P/TSX HAD BEST 6 MONTHS SINCE FINANCIAL CRISIS.

Energy, financials help S&P/TSX rise almost 16%

Canada's main stock exchange scored its best first half since the financial crisis of more than a decade ago, helped by investors piling into value and cyclical equities as the economy revives.

The S&P/TSX Composite index climbed about 16 per cent so far this year, outpacing the S&P 500 and MSCI World Indexes. The benchmark last climbed more than 15 per cent in the first half of a year in 2009, coming out of the financial crisis of 2008.

Some of the best-performing sectors in Canada this year were energy and financials — both of which are beneficiaries of the global economy reopening after the pandemic-driven downturn — and make up about 44 per cent of the Canadian benchmark.

“The first half of 2021 has largely gone according to script – Value and Quality factor styles have somewhat outperformed the market,” said CIBC's strategist Ian de Verteuil in a note. If the market continues to expect better economic growth and higher interest rates, the two investing strategies should continue to outperform, he added.

The TSX energy index outperformed all the sectors this year, climbing more than 30 per cent, driven by oil's rebound from a pandemic low and by rotation into value stocks. Enerplus Corp., Tourmaline Oil Corp. and MEG Energy Corp. were the top three performers within the energy sector, and among top five overall within the index. Copper producer Capstone Mining Corp. and cannabis stock Organigram Holdings Inc. were the other two top five outperformers within the benchmark. All of the stocks climbed more than 100 per cent in the first half of 2021.

Health-care stocks were the second-best performers, led by pot stocks. The tech index, which only accounts for about 11-per-cent weight within the TSX, was the third-best performer, led by BlackBerry Ltd amid memestock mania.

This gradual migration higher for equities is unlikely to reverse any time soon as investors are not ready to sell value stocks yet, according to Canaccord Genuity's Martin Roberge. “A key takeaway from our virtual roadshow with clients is that many find equity markets overvalued, but very few are willing to jump ship since value stocks are not expensive enough, in their view.”

Roberge said value stocks in Canada could be seen as cheap using price-to-book basis, but expensive on price-to-cash flow multiples. However, “the valuation of value stocks in Canada is no roadblock to higher S&P/ TSX levels.”

It was also a good first half on U.S. markets. Wall Street reached record highs, with investors defying pessimistic projections of a broader pullback and pushing past concerns of rising inflation and potential rate hikes.

Wednesday's session marked the midway point of a year that saw a new president move into the White House, a shift in power on Capitol Hill amid the shocks of the pandemic. The three major U.S. indexes are up by double-digit percentages, with the Nasdaq advancing 12.5 per cent, the Dow adding 12.7 per cent and the S&P 500 surging 14.4 per cent since Dec. 31, 2020.