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The stock market appears to be ripe for a correction
The stock market appears to be ripe for a correction
(iStockphoto)

Why the TSX rally is built to last

The greater the number of stocks participating in a rally, the healthier and more sustainable it becomes. The reverse case – fragile rallies driven by a few large-cap stocks – often leads to painful, portfolio-killing corrections, as investors learned at the end of the tech bubble.

One of the best ways to track this phenomenon is by comparing the performance of the market-capitalization weighted S&P/TSX Composite (the usual, most often quoted index) and the equal-weighted S&P/TSX Composite. In the latter case, a 10 per cent rise in a small-cap stock affects the index in exactly the same way as a 10 per cent jump for Suncor Energy Inc.or Bank of Montreal does.