Canadian stocks beat U.S. by most in 13 years and have room to run

The surge in oil prices has fueled a rally in Canadian stocks this year which strategists say still has room to run.

The surge in oil prices has fueled a rally in Canadian stocks this year which strategists say still has room to run. 

The S&P/TSX Composite Index has gained 3.1 per cent, outperforming the S&P 500 by more than 8 percentage points. That’s the widest outperformance in a quarter in 13 years. Energy and materials stocks have surged as the war in Ukraine sparked a rush to oil and to haven assets, propelling the natural resource-heavy TSX to fresh highs.  

The nation’s energy index jumped 27 per cent, its strongest quarter in data going back to 1988, led by major corporates such as Canadian Natural Resources Ltd. and Tourmaline Oil Corp, which have soared more than 40 per cent. Large miners like Teck Resources Ltd. and First Quantum Minerals Ltd. have led materials stocks to a 20 per cent gain, while banks have climbed on the prospect of fatter profits from higher interest rates. Those three groups represent about half of the index.

“This is the perfect environment for the TSX and the commodities sectors,” said Greg Taylor, chief investment officer at Purpose Investments. “And it also doesn’t seem like it’s going to end any time soon. Some of these companies that have weathered the bad commodity environment are coming out on the other side and are really going to become incredibly profitable.” 

Investors have another reason to be bullish. Average earnings per share are expected to grow 33 per cent this year for Canadian firms, compared with 20 per cent for U.S. companies, according to data compiled by Bloomberg. Energy producers are expected to drive the profit boom, with analysts forecasting that average EPS will soar 68 per cent.