The domestic equity market has nothing like the technology subsector depth offered by the S&P 500 and the Nasdaq Composite. Nonetheless, the tech stocks we do have constitute the biggest positive driver of the index so far in 2023.
The S&P/TSX Composite Index is up 1,029 points or 5.3 per cent year to date, as of Tuesday’s close. Shopify Inc. is by far the biggest contributor to returns, adding 354 to the benchmark. Energy giant Canadian Natural Resources is the second largest provider of upside, with 122 index points, and another tech stock, Constellation Software Inc., is close behind, adding 104 points.
Another stock gainer among the 10 most influential for TSX returns is CGI Inc., with 34 points. So these three big tech stocks represent 492 points of the equity index’s gain of 1,029 points.
Technology stocks do not dominate benchmark returns in Canada to the same extent that The Magnificent Seven - Apple, Amazon.com, Microsoft, Meta Platforms, Nvidia, Alphabet and Tesla – drive performance for U.S. index returns. At the same time, it’s clear that without the relatively small number of technology stocks, index returns in the Canadian market would be far less positive.
We are not accustomed to thinking of the technology sector as a central driver of benchmark performance – banks and resources would most often be cited first in terms of influence. Increasingly, investors will have to follow technology stocks more closely to understand market moves.
-- Scott Barlow, Globe and Mail market strategist
Also see Scott Barlow’s Noteworthy: An oversold loonie, and five other insights to watch
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The Rundown
Hiding in plain sight amid all the harsh financial news is a stunning run for stocks
Investors are endlessly warned not to expect double digit returns from stocks, but the S&P 500 has delivered this result with remarkable consistency in recent years, reports Rob Carrick.
How to adjust your portfolio to interest rate uncertainty
Gordon Pape asked his social media followers where they believed interest rates would be one year from now. Here’s what they said.
Also see: BlackRock trims U.S. government bonds underweight, more cautious on credit
Taking an end-of-summer look at the Stable Dividend portfolio
Long-time readers of Norman Rothery know that the Stable Dividend portfolio tracks dividend-paying Canadian stocks with low volatilities. Here he takes a look at recent performance as well as how returns vary based on how frequently the portfolio is rebalanced. For a full rundown of his latest dividend and value portfolios, click here.
Sure, bank stocks face credit risks. But some perspective is needed
One clear theme ran through the latest quarterly financial results from Canada’s largest banks: Lenders are setting aside far more money to handle wonky loans, renewing concerns about how ugly this credit cycle will get. But investors might want to control the urge to flee from the sector, says David Berman. He says there are some compelling points in favour of holding onto Canadian bank stocks, even as lenders look increasingly vulnerable to shifting financial conditions.
The end of an era for investors
Interest rates have spiked at a near-record pace over the past 18 months. So what happens now? Conventional wisdom says the emergency will pass. Inflation will fade and so will the need for higher interest rates. But what happens if it doesn’t? If interest rates stay higher for longer – maybe even permanently – then investors are going to face a much tougher environment than the one they have grown accustomed to over the past generation. As Ian McGugan reports, it’s a possibility that some prominent policymakers and economists are already considering.
Crude oil uncertainty paradoxically equals price stability
Oil prices are likely to remain locked in the same relatively narrow band that has prevailed for much of this year as market participants wait for some of the fog to lift in globe markets. As Reuters reports, there was no clear consensus on how the various influences would play out when the oil industry held its annual gathering this week in Asia. What may be clearer is that base effects are fading when looking at year-over-year oil prices changes, presenting another challenge for central banks and their inflation fight.
Dividend investing works wonders - and now’s a great time to start with these three stocks
Portfolio manager Robert Gill argues that now is a good time for dividend-hungry investors to go shopping, starting with these three Canadian stocks.
Others (for subscribers)
John Heinzl’s model dividend growth portfolio as of Aug. 31, 2023
Two stocks to be added to TSX Composite Index as an energy producer is removed
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Tuesday’s Insider Report: Company leaders are buying these three dividend stocks
Globe Advisor
Six health care stock picks to play defence in times of market volatility
How investors can help drive protection for biodiversity
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Ask Globe Investor
Question: I am thinking about buying shares of a Canadian bank now that prices have fallen. Is there any bank that looks especially attractive to you right now?
Answer: If you don’t already have exposure to Canadian banks, this may be a good time to take the plunge. Share prices have plunged more than 20 per cent, on average, over the past 18 months, and dividend yields – which move in the opposite direction – now average about 5.5 per cent for the Big Five.
For what it’s worth, analysts are especially fond of Toronto-Dominion Bank TD-T, which has 11 buy recommendations, followed by Bank of Montreal BMO-T with 10 and Royal Bank of Canada RY-T with eight. Canadian Imperial Bank of Commerce CM-T and Bank of Nova Scotia BNS-T are well down the list, with two and one, respectively.
If your primary consideration is dividend yield, the two laggards may still be worth a look. CIBC and Scotiabank both yield in the neighbourhood of 6.5 per cent, befitting their higher risk profiles. There’s a school of thought that buying the least loved banks is the way to go, as they presumably have a greater chance of rebounding. However, history has shown that this is a not a slam dunk. Moreover, with the economy potentially heading into a downturn and banks raising their provisions for bad loans in their latest earnings results, there’s an argument for accepting a lower yield in exchange for owning one of the higher-quality banks.
All of that said, predicting how individual bank stocks will perform is a mug’s game. Rather than putting your money on a single horse, you might be better off spreading your bets around by buying an exchange-traded fund that provides broad exposure to the sector. One example is the BMO Equal Weight Banks Index ETF ZEB-T, which owns all of the major banks in roughly equal proportions and charges a reasonable management-expense ratio of 0.28 per cent. Especially if you don’t have any bank exposure already, an ETF will give you diversification to help control your risk.
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
What’s up in the days ahead
Value investing professor Dr. George Athanassakos will argue we’re all being too optimistic about where interest rates head next.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff