Canada’s stock market glory days are over

With oil prices falling, and debt-laden consumers under pressure, investors in the TSX are at risk of another period of prolonged disappointment



Canadian investors with long memories will recall that the 1990s were an incredibly frustrating time to be in the market. While the S&P TSX Composite Index (back then, it was called the TSE 300) trundled along, Canadians could only watch enviously as the S&P 500 index in the U.S. soared ever higher. Yet, because of antiquated RSP rules, Canadians were barred from holding more than 30 per cent foreign content in their registered accounts, severely limiting their potential returns. So, in 2005, when then-finance minister Ralph Goodale scrapped the content rules, there was much applause. But, by then, of course, Canada’s stock market was already well on its way to becoming the hottest game in town.

It was fun while it lasted. With the bottom falling out of the resource sector, in particular, oil, and Canada’s debt-laden consumers coming under pressure, investors in the TSX are at serious risk of another period of prolonged disappointment. As the chart below shows, after a decade of long-term outperformance by Canadian stocks, the S&P TSX’s 10-year return has slipped behind that of the S&P 500 for the first time since 2005.

KIRBY TSX column

Canada’s stock market has had two jetpacks strapped to its back over the last decade that have given it lift: financial services and oil and gas, which together account for about half of the market value of Toronto Stock Exchange-listed companies. The eagerness of Canadian households to pile on debt boosted the bottom lines of Canadian banks. But the pace of lending has slowed sharply, and banks are starting to hand out pink slips to employees. At the same time, oil’s meteoric rise, which got under way in 2002, truly did make Canada an emerging energy superpower. As the chart shows, the rise in oil prices corresponded with the TSX finally closing the performance gap with the S&P 500 before rocketing ahead. Likewise, the collapse of oil left the TSX hanging in mid-air like Wile E. Coyote.

Of course, Canada’s outperformance has owed a lot to America’s troubles, including 9/11, two recessions and endless government deadlocks. So it’s not a surprise that with those problems disappearing in the rear-view mirror, the S&P 500 has played catch-up.

Nor are we fated to repeat the darkest days of the 1990s, when investors in the U.S. market enjoyed 10-year returns that were three times greater than what an index investor in Canada could manage. After all, there was a lot going on here at the time that weighed on the market. The fiscal crisis of the 1990s, coupled with Quebec’s independence referendum, shattered investor confidence. Both issues have, for the most part, been resolved.

But one question remains, and it is vital to where the Canadian stock market, let alone the economy, heads in 2015 and beyond: Is this collapse in oil prices a repeat of 2008, when the price per barrel fell 76 per cent to US$35, before quickly recovering? Or is the glut of oil that’s formed on world markets going to send the energy sector into a multi-year funk like the one that plagued the Canadian oil patch in the 1980s and 1990s? (I put that question to Bank of Canada Governor Stephen Poloz in an interview, which you can read here). Even if we settle into a scenario that’s somewhere between those two extremes, it will result in middling performance for a sector that has been the driving force behind Canada’s stock-market outperformance.

They say you don’t know what you’ve got till it’s gone. Well, say goodbye to the TSX’s golden decade.



Canada’s stock market glory days are over

  1. Boy the Doomsayers and Naysayers are all out in full force these days. Sure glad our ancestors were not like that. This Country never got built using that kind of negativity. Sorry, last time I checked we were not anywhere close to being Saudi Arabia. There is a lot more to this great Country than oil. With the price getting back to where it should be in the first place..maybe it will cut manufacturing costs some along with giving consumers a break…instead of nosediving maybe we can pull ourselves out of this slump. We got lots of resources and lots of good people, so lets make it work. Just maybe if we would get our faces out of the smartphones and start doing something instead of just reading this crap that some of these so called experts are putting out, we just might get some wheres. So tired of reading…unexpected this and a surprising that…if they are truly experts they should not be surprised or finding something unexpected. If you want to read something, go check out some of the great things Canada has given the world in the past through invention, tenacity and just plain hard work..you will be surprised at what we have done and can do. So suck it up and stop all this negative sh** ! End of Rant !

    • Our country was not as crooked not govmint bloated back then. Last time Canada had real good growth only the top 4% paid income tax, there was no welfare or money for nothing programs of consumptive waste, no bailout buddies….

      But my US and international portfolio, TSX vs NYSE, world currencies clearly show Canda is for people willing to lose value. Shows Canada as a pathetic place to invest.

  2. Globalization will close a lot of small casinos.

  3. For those people who work in the oil industry and businesses that rely on a booming oil industry, don’t expect the usual — or any — large Christmas or New Year bonuses. The bosses are in fiscal panic and aren’t going to be giving away money that they think will be needed to survive the coming months, perhaps years.
    That means retailers — including car and truck, major household appliance, and expensive personal computer equipment industries — can also expect a huge decline in sales from now on, meaning less profit and perhaps job layoffs, just as they will occur in the oil service industries.
    Worse yet, with tens of thousands of young people having temporarily abandoned lower paid jobs in their home provinces in order to earn big bucks in Alberta, Saskatchewan and Northern BC, these kids are going to be heading back home broke and disillusioned to their parents’ homes, unable to pay rent or contribute to living costs. Bad times for lots of parents are just around the corner — actually, starting now.
    Happy New Year.

  4. Canada is no place for investors, its a hostile to investment country. And all you get from banks, govmint, investment house is BS, lies and downright ignorance. Her is a does of reality.

    IT WORLD TERMS, USD and Yuan, Canada has been deprecated 17% in the last 14 months. Or GDP shrank, our currency devalued from bloated governments and debt fraud. Inflation lies too from StatsCan as devalue money means people are paying more for everything. American enjoy 50 cent/litre gas, we get $1/litre gas……

    My only regret is not sending more than I did outside of Canada, but I didn’t get it wrong in selling 90% of my remaining Canadian investments off earlier this year. While crooked govmint likes to blame oil for its thin air money fraud, may I remind Candiasn CAD money sunk below 90 cents 8+ months BEFORE oil last was at $100/barrel.

    But hey, Canadian media and people are well conditioned to believe with “blind faith” our crooked governments.

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