TSX Rally 2026 Outlook: Metals and Financials Lead as Energy Faces Headwinds

The S&P/TSX Composite Index demonstrated continued strength at the start of 2026, having gained

over the 29 trading days ending January 9, 2026 [0]. The index closed at on January 9, 2026, with a 20-day moving average of $31,814.47, establishing the period low of $30,908.10 as solid support [0]. Daily volatility remained relatively contained at 0.59%, suggesting orderly market conditions despite the strong prior-year gains [0].

The index achieved a 52-week high of $32,679.70 during this period, demonstrating continued bullish momentum following the exceptional 2025 performance [0]. The sector rotation dynamics observed on January 9, 2026, reveal an important transition: real estate (+1.36%), industrials (+1.32%), and basic materials (+1.27%) led the market, while financial services (-1.01%) and energy (-1.59%) faced selling pressure [0]. This rotation pattern suggests investors are repositioning away from 2025’s leading sectors toward relative value opportunities.

: The basic materials sector nearly doubled in 2025, with mining stocks providing critical support to the TSX advance [4]. Gold prices remain elevated at approximately $4,370 per ounce, supported by expectations of further Federal Reserve rate cuts and central bank buying from emerging markets [2]. Silver surged nearly 150% in 2025, with some analysts targeting $5,000 per ounce for gold in 2026 [3]. Base metals, particularly copper, benefit from data center and renewable energy demand structural tailwinds.

However, the Seeking Alpha analysis characterizes metals as a “constructive hedge” rather than a repeat performer, noting that gold’s 100%+ returns are unlikely to recur and that valuations in mining stocks have risen substantially after the 2025 rally [1]. The materials sector’s gains may not be repeatable, and base metals face an “opaque” 2026 outlook with uncertain macroeconomic outcomes [3].

: Canadian banks represent approximately 33% of the TSX index weight and delivered over 44% total return in 2025 through the ZEB ETF [4]. Major Canadian banks posted strong profit growth throughout 2025, supported by the Bank of Canada’s accommodative policy rate of 2.25%, which sits at the bottom of the central bank’s neutral range of 2.25% to 3.25% [5]. Federal stimulus spending and infrastructure investments from Budget 2025 provide what analysts describe as a “good backdrop for earnings” [5].

Despite these structural supports, the financials sector faces significant valuation challenges. Three-year total returns have essentially doubled, suggesting stretched valuations that require sustained earnings growth to justify [4]. Raymond James notes that rate cuts, CUSMA renewal, and federal spending rollout remain key catalysts for continued sector performance [5].

: Energy is identified as the most challenged sector for 2026, having been the worst performer on January 9, 2026, falling 1.59% [0][1]. Oil price dynamics may mute sector returns unless prices recover, and while leading energy firms remain resilient, sector-wide gains are uncertain [1]. The energy sector’s struggles contrast with the materials sector’s strength, reflecting divergent commodity price trajectories.

The fundamental conditions for Canadian equities appear constructive, supported by several key factors. The Bank of Canada’s accommodative interest rate stance provides support for equity valuations, with 97.9% probability assigned to a hold at 2.25% through 2026 according to LSEG data [6]. However, Scotiabank projects 50 basis points of rate hikes starting in Q3 2026, representing a notable divergence in economist expectations [8].

Budget 2025’s substantial government spending on infrastructure creates an investment-driven economic support mechanism. Desjardins analysts explicitly note: “We expect Canadian equities to benefit ahead of the broader economy, given the investment-heavy nature of budget 2025” [4]. Easing tariff concerns and potential CUSMA renewal create a more stable trade environment, though uncertainty remains elevated [4].

Deloitte has downgraded its 2026 growth outlook, warning of a “slow start to the year” that could temper market expectations [7]. GDP growth remains modest, and the underlying health of Canadian consumer spending represents a key unknown for market participants.

The TSX’s dependence on materials and financials for continued gains creates notable concentration risk. These two sectors together comprise approximately half the index weight [4], meaning their collective performance will largely determine whether the rally can be sustained. This concentration amplifies both upside potential and downside risk, particularly given the elevated valuations in both sectors following strong 2025 performances.

The sector rotation observed on January 9, 2026, where materials continued to advance while financials faced pressure [0], suggests market participants are actively managing this concentration risk through tactical repositioning. Whether this rotation represents a temporary tactical shift or a more structural change in sector leadership remains an open question.

The Canada-U.S.-Mexico Agreement review is consistently described as “the defining issue of 2026” by Desjardins analysts and others [6]. Trade policy outcomes represent a binary risk that could significantly impact market direction in either direction. Resolution of tariff concerns would provide a positive catalyst, while renewed uncertainty or unfavorable terms could create meaningful headwinds.

Three consecutive years of TSX gains, culminating in 2025’s exceptional 28.2% return, raise legitimate questions about sustainability [2]. The materials sector’s near-doubling in 2025 and financials’ 44% return through ZEB have left valuations that “no longer clearly inexpensive” [3]. Earnings delivery will be critical for validating current price levels, and any earnings disappointment in these heavyweight sectors could trigger meaningful corrections.

The precious metals rally represents a structural support factor rather than a cyclical phenomenon. Central bank buying from emerging markets, expectations of continued Fed rate cuts, and safe-haven demand create persistent tailwinds for gold and silver [2][3]. This support extends beyond speculative positioning to fundamental demand drivers that may persist throughout 2026.

: The TSX’s heavy dependence on materials (approximately 17% of index) and financials (approximately 33% of index) creates vulnerability if either sector underperforms [4]. The concentration risk is amplified by elevated valuations that require sustained earnings growth to justify.

: CUSMA renewal remains the “defining issue of 2026” [6], with outcomes highly uncertain. The trade agreement’s renewal or renegotiation represents a binary event that could significantly impact market direction.

: After three consecutive years of gains and exceptional 2025 returns, the index faces potential mean reversion pressure. Three-year total returns having essentially doubled suggests valuations may be stretched [4].

: While most economists expect the Bank of Canada to hold at 2.25% through 2026, Scotiabank’s projection of rate hikes starting Q3 2026 introduces policy uncertainty that could challenge equity valuations [8].

: The materials sector’s near-doubling in 2025 is unlikely to be repeatable [1]. After sharp gains, valuations have risen substantially, and gold’s exceptional returns may not recur [3].

** accommodative Monetary Policy**: The Bank of Canada’s 2.25% rate represents the bottom of the neutral range, providing supportive financing conditions for Canadian businesses and maintaining favorable equity valuation dynamics [5].

: Budget 2025’s substantial government spending on infrastructure creates investment-driven economic support, with Canadian equities expected to benefit ahead of the broader economy [4].

: Continued gold and silver price strength provides ongoing sector support, with some analysts targeting $5,000 per ounce for gold in 2026 [3]. Central bank buying and Fed rate cut expectations create persistent demand.

: The rotation away from 2025’s leaders toward laggards like real estate and industrials [0] may create value opportunities in overlooked segments of the Canadian market.

: BMO Private Wealth cites government spending, defense initiatives, and potential tax cuts as factors supporting their overweight equities stance and 34,000 year-end target [5].

: The TSX Composite Index closed at $32,612.90 on January 9, 2026, having gained 5.34% in the 29 trading days since November 26, 2025 [0]. The index achieved a 52-week high of $32,679.70 during this period with support established near $30,908 [0].

: The TSX gained 28.2% in 2025, its strongest annual performance since 2009 [2]. This exceptional gain followed meaningful advances in prior years, creating a three-year consecutive growth trajectory.

: Metals/basic materials and financials are identified as sectors to watch for 2026, while energy faces headwinds [1]. Materials nearly doubled in 2025; financials delivered 44% returns through ZEB [4].

: CIBC projects a 33,500-35,200 range for year-end 2026; BMO Private Wealth and Raymond James both project 34,000 [5]. Desjardins maintains a constructive but cautious stance tied to rate stability and tariff resolution.

: Bank of Canada rate at 2.25% (bottom of neutral range); Budget 2025 provides infrastructure spending support; CUSMA renewal remains the critical 2026 trade policy issue [5][6].

: Gold at ~$4,370/oz with potential $5,000/oz targets; silver surged ~150% in 2025; base metals face uncertain 2026 outlook [2][3].

: Sector concentration (materials + financials ≈ 50% of index); elevated valuations; CUSMA uncertainty; potential for mean reversion after exceptional 2025; divergent Bank of Canada rate expectations.

: CUSMA renewal outcome; Bank of Canada policy path beyond 2026 H1; materials sector sustainability after 2025 rally; Canadian consumer spending health; earnings delivery capacity at current valuations.