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Canadian equity markets have a reputation for their sector concentration and cyclical swings, often reflecting the country’s deep ties to commodities and resource-driven growth. Over the past decade, sector performance has rotated dramatically, with Energy, Materials and Information Technology each taking their turn at the top. This constant reshuffling has reinforced the importance of diversification, while also highlighting how macroeconomic forces—from global oil shocks to pandemic-driven demand for digital solutions—have left a distinct imprint on sector performance in Canada.

Exhibit 1 highlights Information Technology leading the charts for 6 out of 10 years and stands out for its growth around the 2020 global pandemic, delivering back-to-back gains of over 60% and 80% in 2019 and 2020, respectively, as Canadian tech firms thrived in a digital-first environment. Energy, on the other hand, experienced a sharp rebound in 2021 as oil prices recovered from pandemic lows. The materials sector is rising the charts in 2024 as supported by rising gold prices and increased demand for commodities. In contrast, defensive sectors such as Consumer Staples and Utilities rarely topped the chart but consistently provided stability, often helping buffer strategies during downturns. While Financials remains Canada’s largest sector, the weight of Materials ensures that commodity trends continue to play a defining role in the market’s direction.

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Exhibit 2 highlights the strong outperformance of the Materials sector year-to-date, advancing over 50%—more than double the gains of the next-best performing sector within the S&P/TSX Composite Index. The rally has been driven in large part by the strength of gold, as several of Canada’s largest mining companies, including Agnico Eagle and Barrick, benefited from higher bullion prices amid ongoing macro uncertainty. Gold producers dominate the sector’s composition, representing the majority of the top constituents in the S&P/TSX Capped Materials (see Exhibit 3).

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The Materials sector in Canada is heavily influenced by precious metals prices. Exhibit 4 shows that the performance of the S&P/TSX Capped Materials has historically tracked closely with movements in gold prices. The index’s capped methodology supports diversification by limiting the weight of any single issuer, while still maintaining close alignment with movements in gold prices. With gold climbing to multi-year highs, Canadian mines have driven the sector’s performance ahead of all others.

The current outperformance of Materials serves as a reminder that Canada’s market structure features listed explorers and producers of commodities—which are inputs needed for the manufacturing of semiconductors, batteries, LCD screens, electric vehicles and other high demand goods. Contributing to a more complete picture of diversification beyond sectors like Financials and Technology, the country’s deep mining base could provide insight into the forces driving global markets today.

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