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US stocks have had a nice year, but Canadian equities are on a major tear

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Canadian stocks crush U.S. equities

Equity markets in the U.S. have rallied this year, but Canadian stocks have rallied even more — and the outperformance could continue into early next year.

While the broad has climbed nearly 11 percent year to date, the S&P/TSX composite index is up over 17 percent in the same time. The benchmark index for Canadian equities is on track for its best year since 2009, when it gained nearly 31 percent.

Canadian energy and financial stocks, which dominate the index, have performed particularly well this year as crude oil has come off its January and February lows, and banks have rallied in the wake of rising rates.

"Go Canada," Drummond Brodeur, senior vice president and global strategist at Toronto-based CI Investments, remarked in a Tuesday interview.

"The big, big bounce was in the energy and materials space," Brodeur said. "There was no way Canada couldn't outperform when the index is so heavily concentrated in the best-performing sectors."

The Canadian financial stocks sector has certainly benefited from rising rates, Brodeur said in a Tuesday interview with CNBC. The rising rate environment, he said, "poured a little bit of gasoline onto financials."

Brodeur sees the rally in the TSX composite largely as a cyclical bounce, which means it could continue into the first quarter but not quite last through 2017. Oil may not rally much higher than $60 per barrel, he noted, "so our best days of outperformance are behind us."

"I think some of this outperformance has really come after some significant underperformance for the TSX," Ari Wald, head of technical analysis at Oppenheimer, pointed out Monday on CNBC's "Trading Nation." "It's playing a bit of near-term catchup," he said.

The charts indicate that the index's run could continue, Wald said.


"I think it's in position for a breakout to new highs. On a relative basis, for the long term, we still have a slight preference for the U.S., for the S&P 500. So there's some relative considerations here, but I think in absolute terms, that Canadian TSX is going to be setting up for new cycle highs over the coming months," he said.

The top-weighted holding in the TSX, the Royal Bank of Canada, is up 28 percent in 2016.