TSX Outperforms S&P 500 Amidst Concentrated Commodity Cycle

The S&P/TSX Composite index in Canada outperformed its US counterpart, the S&P 500, by nearly six percentage points over the past year. The TSX returned +24.24%, while the S&P 500 returned +18.28%. This home-country bias is unusual, as it was the concentration of financials, energy, and materials in the TSX that contributed to its success, not a broad-based improvement.

The Canadian dollar's relatively flat performance against the US dollar meant that converting US returns into Canadian dollars had little impact on the comparison. However, the euro fell 1.14% against the Canadian dollar, while the Brazilian real rose 6.15%, affecting the returns of international indices when restated in CAD.

Gold returned +23.80%, closely matching the TSX's performance, and highlighting the commodity-driven nature of Canada's index. The TSX's outperformance came from concentration, not breadth, which can be a double-edged sword: while it may deliver strong returns during a commodity cycle, it can also lead to significant losses when that cycle turns.