Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

With earnings season pretty much wrapped up, the record highs that have eluded the Canadian stock market for six months may be starting to come into view.

As impressive as the rally in Canadian stocks has been over that time, there’s been one big missing piece. Or rather, six of them.

The Big Six, as Canada’s largest banks are known, have been mired by concerns over the economy and resulting credit losses, which has held back the S&P/TSX Composite Index from making that last leg upward to pre-pandemic levels.

Story continues below advertisement

“We expect financials will eventually participate in the recovery with much higher conviction than is currently priced in, and when it does, the TSX is likely to see strong outperformance and hit new all-time highs,” Brian Belski, chief investment strategist at BMO Nesbitt Burns, said in a note.

He revised his 2020 year-end target for the Canadian benchmark index to 18,200, just higher than the previous record of 17,944 set in mid-February, before the pandemic sent global and domestic equities into a tailspin.

“No doubt the uncertainty and chaos that COVID-19 impressed upon the world has shifted investor preferences, but as the market continues to pivot from chaos to coexist, we believe Canadian stocks will ultimately participate,” Mr. Belski said.

Since the low point in the sell-off was recorded on March 23, the S&P/TSX Composite Index has risen by 49 per cent – a monumental rebound, but still trailing U.S. stocks by a decent margin. The S&P 500 index is up by 56 per cent while the technology-heavy Nasdaq Composite Index has gained 70 per cent.

While the beleaguered energy sector has played a role in that underperformance, financial stocks, which comprise nearly 30 per cent of the TSX by market capitalization, are the main culprit.

Canada’s diversified bank stocks were hammered in the selloff, falling by roughly 40 per cent as a group, and are still trading 15 per cent below their peak, on an equal-weighted basis.

With the world awash in credit risk, investors have been leery of bank stocks. And for good reason. As all the major Canadian banks have reported in their earnings releases this week, profits have clearly come under pressure and substantial reserves are being built to cover loan losses.

Story continues below advertisement

But most of the banks managed to easily beat Bay Street earnings forecasts, in what Scotia Capital strategist Hugo Ste-Marie called a “big step forward.”

“The environment certainly remains challenging, but the sector appears well positioned to do some catch-up,” Mr. Ste-Marie wrote.

He pointed to improvements in the Canadian labour market, a modest increase in bond yields, which tend to boost bank profits, generous dividend yields, and the lowest relative valuations in 20 years – 10.5 times forward earnings for the banks, versus 18.7 times for the broader TSX.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies