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The S&P/TSX Composite Index touched the 20,000-mark on Tuesday for the first time on record – a milestone that would have seemed out of reach a little over a year ago.

The road to 20,000

After pandemic bust, S&P/TSX Composite rallies

to new record milestone

20,000

18,000

16,000

14,000

12,000

10,000

June

Aug.

Oct.

Jan.

May

July

Sept.

Nov.

Jan.

March

2019

2020

2021

June 1

S&P/TSX hits intraday record

above 20,000, powered by

continuing rallies in financial,

commodity and industrial stocks.

Late February peak

Stocks begin a sharp

descent as COVID-19

spreads around the world.

March low

After sudden bear market,

stocks bottom out as govern-

ments and central banks

signal broad stimulus moves.

November

News of effective vaccines

propels stocks amid growing

optimism about economic

recovery.

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: REFINITIV EIKON

The road to 20,000

After pandemic bust, S&P/TSX Composite rallies

to new record milestone

20,000

18,000

16,000

14,000

12,000

10,000

June

Aug.

Oct.

Jan.

May

July

Sept.

Nov.

Jan.

March

2019

2020

2021

Late February peak

Stocks begin a sharp

descent as COVID-19

spreads around the world.

June 1

S&P/TSX hits intraday record

above 20,000, powered by

continuing rallies in financial,

commodity and industrial stocks.

March low

After sudden bear market,

stocks bottom out as govern-

ments and central banks

signal broad stimulus moves.

November

News of effective vaccines

propels stocks amid growing

optimism about economic

recovery.

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: REFINITIV EIKON

The road to 20,000

After pandemic bust, S&P/TSX Composite rallies to new record milestone

20,000

Late February peak

Stocks begin a sharp

descent as COVID-19

spreads around the

world.

June 1

S&P/TSX hits intraday record

above 20,000, powered by con-

tinuing rallies in financial, com-

modity and industrial stocks.

18,000

16,000

November

News of effective

vaccines propels

stocks amid grow

ing optimism about

economic recovery.

14,000

March low

After sudden bear market,

stocks bottom out as

governments and central

banks signal broad stimu-

lus moves.

12,000

10,000

June

Aug.

Oct.

Jan.

March

May

July

Sept.

Nov.

Jan.

March

2019

2020

2021

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: REFINITIV EIKON

In the 14 months since the depths of a market crash sparked by the worst global pandemic in a century, the Canadian benchmark index has risen by about 78 per cent, ranking it as one of the best bull runs ever. The index rallied on Tuesday to a high of about 20,022 before settling back to close at 19,976, posting a gain of 245 points or about 1.2 per cent on the day.

The journey from a closing low of 11,228 in March, 2020, to Tuesday’s intraday breakthrough was fuelled by a powerful concurrence of forces on a global scale.

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The rally started with an immense and co-ordinated response by central banks and governments to unleash a wave of stimulus, was sustained by a rush into stay-at-home stocks and Big Tech, picked up momentum as effective COVID-19 vaccines were introduced to the market, and gained renewed strength from the economic boom that approaches on the other side of the pandemic.

“This has exceeded almost everyone’s most optimistic expectations,” said Craig Jerusalim, senior portfolio manager at CIBC Asset Management. “I thought that there would be a recovery, but I did not think it would be anything close to the spectacular run we’ve had.”

Like many bull markets before it, this one was born at a moment of extreme pessimism.

Beginning in February, as it became clear that the novel coronavirus had spread well beyond China’s borders and a frightening new reality was upon the world, the S&P/TSX Composite Index plunged by 37 per cent.

It was a bewildering undoing of both social and financial order, and to the masses of investors, it seemed far from over. And yet, with the virus still rampaging and vast lockdowns just getting started, the stock market’s rebound began.

Facing a potential economic depression, policy makers applied lessons learned from the global financial crisis, slashing interest rates immediately while pumping trillions of dollars into the financial system and the economy, stopping the sell-off in its tracks.

“I don’t think enough can be said about the power of the one-two combination of low interest rates and government stimulus,” Mr. Jerusalim said in a phone interview.

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With the corporate sector effectively backstopped by public money and central bank balance sheets, confidence returned to financial markets. The market bottom was set.

While the awesome scale of the policy response engineered a remarkable stock-market turnaround, it has also created some “incredibly strange unintended consequences,” said Jason Mann, chief investment officer at Toronto-based EdgeHill Partners. In an e-mail, he cited “record savings rates, the average consumer earning more during a pandemic than prior, and the rise of the meme stock day-trader as people sat home with no sports to bet on.”

It has been a fairly steady upward trajectory for stock indexes since the low point, but the pandemic-era bull rally can really be split into two distinct phases.

The first phase was led by growth stocks and technology names. With the global economy facing the worst hit to growth in decades, investors flocked to stocks that could generate growth on their own.

Tech and internet giants such as Facebook Inc. , Apple Inc., Amazon.com Inc. , Netflix Inc. , and Google-parent company Alphabet Inc. took on a colossal global profile. This trade was magnified by the sudden appeal of companies geared toward life under lockdown, such as Zoom Video Communications Inc. , Peloton Interactive Inc. , and Slack Technologies Inc.

The U.S. stock market, with its unmatched abundance of tech listings, became a beacon for the copious liquidity sloshing through the global financial system.

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In Canada, the lack of tech-sector breadth was a blemish. There were exceptions. Up-and-comer software names such as Lightspeed POS Inc. , a cloud-based retail and restaurant point-of-sale service provider, and supply-chain software company Kinaxis Inc. , posted triple-digit gains.

TSX best performers since low of March 23, 2020

CompanyTicker% Change
AcuityAds Holdings Inc.AT-T 1,621.8
Whitecap Resources Inc.WCP-T 665.7
NexGen Energy Ltd.NXE-T 627.5
Westport Fuel Systems Inc.WPRT-T 622.5
SunOpta Inc.SOY-T 593.6
Lightspeed POS Inc.LSPD-T 571.2
goeasy Ltd.GSY-T 558.0
Interfor Corp.IFP-T 551.1
MEG Energy Corp.MEG-T 499.3
First Quantum Minerals Ltd.FM-T 490.0

But the big success story in Canadian tech was Shopify Inc. , which became a bona fide global e-commerce champion in a world forced to dramatically accelerate the shift to online retail. Shopify’s shares quadrupled from pandemic trough to peak, making it the largest publicly listed company in the country.

Then in November, the script flipped, starting with the announcement from Pfizer Inc. and its German partner BioNTech SE that its COVID-19 vaccine was much more effective than scientists were anticipating. Other pharmaceutical companies soon reported similar trial results, which abruptly brought into view an end to the pandemic.

At the prospect of an eventual return to normal life, the market’s preferences shifted to stocks that could benefit most from the unleashing of the global economy, such as resource names, financials, and consumer discretionary stocks. Since early November, those three sectors have topped the Canadian market, with gains of 55 per cent, 38 per cent, and 36 per cent, respectively.

This particular style of market plays heavily to Canada’s strengths. On the resource side, explosive global demand has generated a run on commodities of all kinds, elevating prices to levels not seen in several years. Canada’s profusion of listings in mining, energy, forestry and agricultural industries has sparked renewed interest in the TSX by foreign investors.

TSX best performers, year to date, 2021

CompanyTicker% Change
OrganiGram Holdings Inc.OGI-T 118.3
Enerplus Corp.ERF-T 107.1
MEG Energy Corp.MEG-T 88.5
Denison Mines Corp.DML-T 85.7
TFI International Inc.TFII-T 77.7
Tourmaline Oil Corp.TOU-T 72.7
Crescent Point Energy Corp.CPG-T 70.4
Imperial Oil Ltd.IMO-T 69.4
NexGen Energy Ltd.NXE-T 65.8
Vermilion Energy Inc.VET-T 64.8

Source: S&P Global Market Intelligence. Data as of June 1, 2021

Canada’s other great repository of stock market wealth – the big banks – are also particularly well-suited to the great reopening. With a torrent of business bankruptcies apparently averted, the banks are starting to augment their profits by unwinding provisions for bad loans. Since the stock market’s inflection point last November, the S&P/TSX Diversified Banks Index has gained 46 per cent, on an equal-weighted basis.

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“From financials to commodities, the cyclical aspect of the TSX has really powered it, especially this year,” said Mr. Jerusalim of CIBC. Corporate profits have soared, which has served to keep the Canadian stock market from getting overheated, he added. The S&P/TSX Composite Index is trading at 16.5 times forward earnings estimates, compared with a 20-year average of around 15 times. Even after an 80-per-cent run, valuations appear only slightly elevated.

Now, with value stocks well positioned and growth stocks looking incredibly expensive, the cyclically tilted TSX is set to shine, said EdgeHill’s Mr. Mann. “We’ve created a near perfect market for Canada.”

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