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The more Canadian stocks change, the more they stay the same.

Since the mid-point of the year, underlying Canadian equity performance has largely reversed, making leaders of first-half laggards and laggards of leaders.

The net effect, however, has been nil, with the S&P/TSX composite index continuing to meander along roughly where it was last December.

But, although Canadian equities have been unresponsive to underlying strength, the conditions do largely remain supportive, particularly for financials stocks, according to Brian Belski, chief investment strategist at BMO Nesbitt Burns.

"Financials remains our largest overweight position in the TSX and fundamentals continue to support this view," Mr. Belski said in a note to clients.

Going into the second half of the year, several Canadian economists made bullish calls on domestic stocks after a rough start to the year.

While every other major market index advanced in the first half of 2017, the main Canadian index was a slumping outlier.

The case for a revival cited Canada's recovery from the oil shock, a firmer domestic economy over all, a favourable earnings cycle and a discount in pricing against U.S. stocks.

By some measures, the argument in favour of Canadian equity outperformance has strengthened over the past six weeks.

Crude oil prices, while still below $50 (U.S.) a barrel for West Texas intermediate, have rebounded sharply from a low of $42.50 in June. Similarly, the Alberta economy remains below prerecession levels, but is poised to potentially lead all provinces in growth this year and next.

The national economy's string of impressive data continued with May real GDP growth coming in at 4.6 per cent over the prior year, putting the country on track for growth of about 3 per cent for this year as a whole.

And continued divergence from U.S. stock prices has made Canadian equities even more attractively priced on a relative basis.

Even before the second half started, the gap between Canadian and U.S. valuations was its highest since 2004, Stéfane Marion, chief economist at National Bank of Canada, said in a note.

The weeks since the end of June have seen further U.S. equity gains, as the recent spike in volatility tied to escalating tensions with North Korea have not put the S&P 500 into the red in the second half so far.

The S&P/TSX composite index, meanwhile, has dropped by just shy of 1 per cent since the end of June. That's just how much the index fell in the first half of the year, as well.

But the sectors and stocks driving the index seemed to reverse as of the halfway point of 2017.

The three worst-performing sectors from January to June also happened to be the market's largest – financials, energy and materials, which together account for two-thirds of the index's market capitalization.

Those three sectors have since become the best of the S&P/TSX composite, along with telecoms. But that hasn't been enough to spark the index, with materials being the only one of the big three sectors to realize a respectable gain.

Plus, only about 100 of the stocks in the S&P/TSX composite index are in positive territory since the end of June.

If there is to be a rally, there is no greater candidate to lead it than the financials sector, Mr. Belski said.

"Valuations are among the most attractive in the TSX," he said. And, "profitability remains resilient and near peak levels."

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