TSX is scorching - save for mining stocks

TSX is scorching - save for mining stocks
TIM KILADZE
RTGAM

It's been a tough year for Canadian capital markets. Deal flow is down. Trading volumes took a big hit. Confidence has waned. It all paints a picture of a country that's struggling in finance.

The truth is, Canadian stocks are on fire, so long as you discount miners. Without them, our stock market is just about as hot as the U.S.

The S&P/TSX Composite Index is up 8 per cent since January, while the S&P 500 has tripled our return. But those figures can be misleading, because you they don't compare apples to apples. Strip out Canadian mining stocks, whose sub-index has plummeted 29 per cent in 2013, and you start to see some similar returns.

Lately Canadian financials have proven this, with their sub-index up 17 per cent this year. But other indices also offer some pretty startling stats: the consumer discretionary sub-index is up 37 per cent, driven by companies like Dollarama Inc.; the technology sub-index is up 31 per cent, boosted by the likes of CGI Group; and the industrials sub-index soared 30 per cent since January on the back of big gains from Air Canada and engineering firms such as Stantec Inc.

If this all sounds familar, it's because the same situation played out last year. In 2012 the S&P 500 returned 12 per cent, while the S&P/TSX Composite Index churned out a total gain of just 2 per cent. Yet the aggregate numbers didn't tell the whole story because mining stocks got burned, while certain sectors, such as real estate, were scorching hot.

This year's hot market outside of resources has had a big effect on what sectors saw deal flow. In an unusual twist, retail has been one of the industries for dealmaking in 2013, with takeovers led by Loblaw Co. Ltd., Hudson's Bay Co. and Sobeys Inc.

Subdued resources have also re-worked the sector weightings of the TSX in a big way. Before the big mining bust, the financials, energy and materials sub-indices typically accounted for 20 to 25 per cent of the total Composite Index each. Today those weightings are all out of whack. Financials now make up 35 per cent, energy 25 per cent, and materials just 12 per cent.