The close: TSX surges to all-time high

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Now that Canada's benchmark index has surged to a new high, market watchers believe Canadian stocks are ideally positioned if global growth improves and inflation picks up.

The S&P/TSX composite index closed at 15,109.25, up 53.36 points or 0.4 per cent on Wednesday. Its previous highest close was 15,073.13, on June 18, 2008 – six years ago to the day. The move caps a 5 1/2-year recovery from the index's bear market low in 2009, the depths of the financial crisis.

However the high close in Toronto comes more than a year after the U.S. benchmark index, the S&P 500, hit its first record-high since the financial crisis. The U.S. index has since surged another 25 per cent after breaking a series of records over the past year, including another one on Wednesday.

"In some ways, the TSX has been late to the party," said Douglas Porter, chief economist at BMO Nesbitt Burns.

"We've been a bit slow to come around, in stunning contrast to how the underlying economy was one of the world's first to rebound" following the financial crisis, he said.

The latest gains followed the release of the U.S. Federal Reserve's policy statement, which repeated that the Fed would keep its key interest rate near zero for a "considerable time" after it ends its bond-buying stimulus program later this year, despite signs of higher inflation.

The S&P 500 closed at 1,956.98, up 15 points or 0.8 per cent, after rising for four straight days.

But what's remarkable about the Canadian index is that its recovery has come without record highs from many of its former stars, including gold miners, oil and fertilizer producers, and BlackBerry Ltd.

Indeed, energy stocks remain 17-per-cent below their high point in 2008, materials stocks are 45-per-cent below their high in 2011 and BlackBerry (formerly Research In Motion Ltd.) is off 94 per cent.

Gold hit a peak of $1,900 (U.S.) an ounce in 2011, amid concerns that extraordinary efforts by the world's major central banks to boost economic growth would lead to a surge in inflation; it has since fallen more than 30 per cent.

Potash Corp. of Saskatchewan Inc., Canada's most valuable company several years ago, has struggled with lower fertilizer prices; the shares have fallen nearly 50 per cent since 2008.

As for energy stocks, the sector has been rebounding with stronger crude oil prices this year. However, earnings have been weighed down by high operating costs and limited pipeline capacity. Despite an impressive recent rally, Suncor Energy Inc.'s share price is no higher today than it was in 2006.

So how did the TSX rally to new highs with so many laggards? Financials and industrials have embarked upon awesome rallies.

Bank stocks in particular have surged about 50 per cent since 2008, making the financial crisis look like little more than an inconvenient blip. They have benefited from a stable economy, a strong housing market, rising dividends and a reputation for emerging from the financial crisis relatively unscathed.

Industrials have performed even better, rising nearly 60 per cent since 2008. The railways stand out within the group: The combination of a recovering economy and popularity of intermodal shipping has driven earnings steadily higher.

A number of factors are now working in Canada's favour.

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, pointed out that signs of rising inflation in North America and other parts of the world should support resources, even if economic growth is sluggish.

"Canada really stands out as a hedge against inflation or stagflation," he said. "The Canadian stock market is long on hard assets, otherwise known as resources."

As well, the S&P/TSX composite index has traded at a significant discount to the S&P 500, based on earnings expectations – and gains this year have narrowed the discount only slightly.

The S&P/TSX composite index has been one of the world's strongest performers in 2014, with a gain of 11 per cent.

Peter Buchanan, senior economist at CIBC World Markets, noted that Canada should also benefit from improving global economic growth, following a slow start to the year, and signs that China's economy appears to be stabilizing.

"Of course, that's a key driver for commodity prices," Mr. Buchanan said.