Business Environment Profiles - Canada
Published: 20 February 2025
S&P/TSX Composite
24985 Index
7.5 %
The S&P/TSX Composite Index is a commonly cited indicator of stock market performance in Canada. At the time of writing, it includes about 250 companies and accounts for seven-tenths of the total market capitalization of the Toronto Stock Exchange. The companies included in the index are from various sectors across the economy, including oil, finance, telecommunications, retail and manufacturing. The values presented in this report are the average of December close figures. Data is sourced from Statistics Canada.
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The constituents of the S&P/TSX Composite Index are most heavily weighted to the finance and energy sectors. As a result, fluctuations in the energy sector due to changes in oil prices affect the performance of the index. A steep decline in global commodity prices in late 2014 was reflected in the performance of the index, which declined in 2015. As corporate profits are a key input of how the index will perform in the outlook period, much of the expected performance will be based on this. For example, if corporations in the index are able to successfully expand into higher growth emerging markets, this may reflect positively on the S&P/TSX Composite Index. Uncertainty in cost pressures and a possible reversion to the mean for equity valuation metrics, which are currently above historical averages, are also expected to weigh in on the performance of the index constituents. Uncertainty regarding the pandemic affected price and performance of stocks included in the index, resulting in subdued growth in 2020.
In 2021, the index expanded over 20.0% in response to the fears surrounding the pandemic waning. However, 2022 was a challenging year for investors due to inflation and rising interest rates. Consequently, the index fell 8.7%. Moving into 2023, uncertainty regarding inflation are concerning investors. Several aggressive rate hikes by the Bank of Canada have introduced more volatility into the market. Additional volatility from the Russian war on Ukraine and the Gaza-Hamas conflict has also increased investor uncertainty. Investors concerned with yield have shifted out of the S&P/TSX Composite and towards a more stable investment until inflation, and other macroeconomic events, calm down. As a result, growth was moderate in 2023. 2024 experienced strong growth, reaching about 20.0%, due to a boost in energy stocks such as oil and natural gas.
Data Volatility
Fluctuations are a hallmark of stock prices and the components of the S&P/TSX Composite Index are no exception. High volatility persists even though the averaging of 250+ stocks reduces the effects of changes at a single company. In addition to the performance of its companies, the S&P/TSX Composite Index is responsive to events that affect the broader economic and business climate. Examples of such events include terrorist attacks, wars, sell-offs in foreign markets, significant changes in commodity prices and movements in market sentiment. As a result, values for any given year may vary greatly from expectations. Moreover, with Canada and the United States negotiating tariff implementations, the index is exposed to high volatility and uncertainty.
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