Canada's Financial Sector Hits 8-Year High as Bank Stocks Dominate

Canada's financial sector has reached an eight-year high on the TSX benchmark stock index, accounting for 37% of the total. This increased concentration in financial stocks reduces diversification benefits for investors and increases exposure to potential declines in the banking sector.

The six major banks in Canada - Royal Bank of Canada (TSX:RY), TD Bank (TSX:TD), Bank of Montreal (TSX:BMO), Bank of Nova Scotia (TSX:BNS), CIBC (TSX:CM) and National Bank of Canada (TSX:NA) - dominate the country's financial market, with multiple quarters of double-digit earnings growth.

Financial stocks have outpaced energy and materials sectors since February, when the U.S. attacked Iran, gaining 22% in value while energy stocks rose 7% and materials stocks dropped 25%. According to Michael Dehal, senior portfolio manager at Dehal Investment Partners at Raymond James, 'That is an area of concern for me... If the earnings cannot live up to the multiple, you are going to see the price decline and that's going to weigh on the TSX.'