A sign board in Toronto displays the TSX close on March 16, 2020. Beneath the surface of the stock market’s near-miraculous rebound since March, seismic shifts have altered the fortunes of the companies within Canada’s benchmark index.Frank Gunn/The Canadian Press
Beneath the surface of the stock market’s near-miraculous rebound since March, seismic shifts have altered the fortunes of the companies within Canada’s benchmark index.
The S&P/TSX Composite Index is now down just 17 per cent from its peak in February, before the COVID-19 pandemic took hold. That qualifies as a mere garden-variety correction in terms of total market losses.
But at the level of individual stocks, the swings have been more on par with the pandemic’s powerful global impact.
Over the roughly three months since the selloff began, the worst performing stock in the index is oil field services company Shawcor Ltd., which is down by 84 per cent, while the top performer is software company Kinaxis Inc., which is up by 50 per cent.
Those two stocks are good representatives of two of the dominant trends of lockdown-era investing – the rise of the tech sector, and the fall of oil and gas.
“It’s been an exacerbation of continued pattern that’s been in place for quite a while,” said Ryan Bushell, president and portfolio manager of Toronto-based Newhaven Asset Management.
The pandemic hasn’t so much reordered the market’s winners and losers, as magnified the pre-existing divergence between the two. Here we take a closer look at the leaders.
Technology
In relegating hundreds of millions of people around the world to their homes, the pandemic thrust the U.S. tech giants to the forefront of day-to-day life.
The group of seven leading tech stocks, including Facebook Inc., Amazon.com Inc., Netflix Inc., Alphabet Inc. (the parent of Google) and Microsoft Corp., now accounts for nearly one-quarter of the Standard & Poor’s 500’s market capitalization.
The publicly traded tech sector in Canada, while minuscule in comparison with the United States, has also separated from the pack during the market rebound. The S&P/TSX Information Technology Index is up by 26 per cent year-to-date, and Shopify Inc. now sits atop the TSX as the largest publicly traded company in Canada, with a market cap of $123-billion.
“With many technology companies seeing solid growth and/or recurring revenue despite the current market uncertainty, we consider the technology sector as well positioned relative to other TSX sectors,” CIBC World Markets analyst Todd Coupland wrote in a report.
Gold
Gold, as they say, loves a crisis.
For the first time since 2012, gold sits at more than US$1,700 per ounce – a rise driven by the demand for assets perceived as safe havens, as well as a potential hedge against inflation.
Canadian gold miners have closely tracked that move upward. Of the top 20 performers in the S&P/TSX Composite Index since the pandemic sell-off started, 15 of them are gold producers, with shares in Barrick Gold Corp. and Kinross Gold Corp. rising by more than 30 per cent over that time.
According to Martin Roberge, a portfolio strategist at Canaccord Genuity, the Canadian gold group has entered the second phase of a bull market. “While the easy money has been made in this gold bull market, phase two is usually momentum-driven, very powerful and can last two to three years,” Mr. Roberge wrote in a recent note.
Consumer Staples
When it became clear in mid-March that the coronavirus had gained a foothold around the world, and non-essential retailers were abruptly forced to close, consumers everywhere turned their focus to the basics.
Canadian grocers saw explosive demand growth. Loblaw Cos. Ltd. said pandemic-related shopping accounted for $751-million in additional sales in the first three weeks of March. Sobeys’ parent company, Empire Co. Ltd., reported same-store sales growth of 37 per cent over just four weeks, compared with the same period a year earlier.
So it’s hardly surprising that consumer staples was the most resilient Canadian sector through the market crash, declining by 23 per cent from peak to trough, compared to a 37-per-cent loss in the S&P/TSX Composite Index. And most of the grocery-store stock losses have been recouped.
“However, companies have warned that the surge in sales related to COVID-19 has started to wane in April,” Mr. Roberge wrote, adding that grocers’ earnings strength should peak in the second quarter as social restrictions ease.
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Tim Shufelt