TSX Index Reaches Record Highs: Driving Factors and Market Outlook

Based on comprehensive market data and analysis, I can provide a detailed assessment of the factors driving TSX record highs and the Canadian equity market outlook.

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The S&P/TSX Composite Index has demonstrated exceptional performance, recently trading at approximately

—up over the trailing 30-day period, with the index reaching all-time highs [0]. The benchmark delivered a , marking its strongest annual performance since 2009 and significantly outpacing the S&P 500’s 14% return [1][2]. This remarkable outperformance represents a notable reversal from the previous decade, when Canadian equities generally lagged their U.S. counterparts.

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The Canadian materials sector was the primary catalyst for the TSX’s exceptional performance, delivering over

—the best-performing sector by a substantial margin [3]. Several commodities have driven this momentum:

• Gold
  : Prices surpassed
  $4,370 per ounce
  in early 2026, supported by central bank buying, geopolitical uncertainty, and expectations of further Federal Reserve rate cuts [4]. Gold mining stocks dominated the best performers, with Lundin Gold Inc. rising
  291%
  , New Gold Inc. up
  233%
  , and OceanaGold Corp advancing
  228%
  [3].

• Copper
  : Hit record levels near
  $13,000 per tonne
  , fueled by the “electrification of everything”—specifically the massive infrastructure requirements for AI data centers and global renewable energy grids [5].

• Silver
  : Surged nearly
  150% in 2025
  , driven by data center and solar energy demand, with prices reaching
  $73.75 per ounce
  in early 2026 [4].

This commodity resurgence has prompted market observers to draw comparisons to the commodity supercycle of the early 2000s, though the current drivers are more fragmented but equally powerful: Western re-industrialization, the global energy transition, and renewed focus on national resource security [5].

The Bank of Canada delivered

, bringing the policy rate to —described by analysts as “quite accommodative” and at the bottom of the central bank’s neutral range of 2.25% to 3.25% [6][7]. This monetary easing has provided significant support to:

• Financial sector profitability
  : Lower rates improve net interest margins for Canadian banks, which comprise approximately
  32% of the TSX index
  [1]. Banks like Toronto-Dominion Bank, Bank of Montreal, and Brookfield Asset Management have benefited from this environment [8].

• Corporate borrowing costs
  : The accommodative policy stance has reduced financing expenses for Canadian enterprises, supporting capital expenditure and expansion plans.

• Valuation expansion
  : Lower discount rates have contributed to expanded price-to-earnings multiples across the market.

Canadian financials, representing nearly one-third of the TSX, delivered approximately

[3]. The sector received multiple tailwinds:

• Rising net interest margins
  from the Bank of Canada’s rate-cutting cycle
• Strong employment trends
  and economic resilience
• Tight investment-grade credit spreads
  , signaling positive earnings per share (EPS) growth prospects [8]

CIBC’s 2026 outlook places financials at the top of sector recommendations with a

, highlighting Bank of Montreal, Great-West Lifeco, Toronto Dominion Bank, and Brookfield Asset Management as top picks [8].

The Canadian dollar’s movements have strengthened relative returns for Canadian stocks. The TSX’s commodity-heavy composition has benefited from a

, which serves as “the secret sauce for the Canadian benchmark’s commodity-led outperformance” [4]. Additionally:

• Canadian stocks maintained
  favorable relative valuations
  compared to bonds, real estate, and U.S. equities [9]
• A
  rotation away from the U.S. stock market
  has occurred, with investors seeking diversified exposure and value opportunities [1]

Billions of dollars in federal government stimulus spending are flowing into infrastructure projects and corporate investment, creating what analysts describe as “a good backdrop for earnings to deliver” [6]. Budget 2025’s investment-heavy measures are expected to benefit Canadian equities ahead of the broader economy.

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Major financial institutions maintain a

for 2026:

Institution	TSX Target	Expected Return
CIBC	35,200	+11%
Raymond James	34,000	+7%
Edward Jones	—	Double-digit EPS growth

Edward Jones projects

, with all eleven TSX sectors expected to deliver positive earnings growth [10]. The key themes include:

• Earnings growth taking the driver’s seat
  : After valuation expansion in 2025, fundamental earnings improvement is expected to drive returns [8]
• Double-digit EPS growth
  supported by capex tailwinds from data center buildout and government infrastructure priorities [8]
• Canadian GDP recovery
  : Growth could rebound to approximately
  2% by year-end
  , supported by easing trade tensions, supportive interest rates, and strengthening employment trends [10]

Analysts’ forecasts depend on several critical assumptions [6][7]:

1. Additional Bank of Canada easing
   : One more rate cut to
   2%
   (into stimulative territory)
2. Successful CUSMA renewal
   : The Canada-United States-Mexico Agreement renegotiation in July 2026 represents a “considerable risk”
3. Continued commodity momentum
   : Maintenance of elevated commodity prices
4. Tariff relief
   : Easing of trade tensions that pressured markets in early 2025

• Materials
  : Expected to remain strong but potentially more volatile as gold and base metal prices fluctuate
• Financials
  : Continued benefit from rate environment, though valuations have normalized
• Energy
  : A potential risk area, as oil has struggled and remains important (15% of TSX weight) [9]
• Technology
  : Celestica Inc. delivered
  208% returns in 2025
  , highlighting opportunities in Canadian tech [3]
• Industrials
  : Bombardier rose
  139%
  , with infrastructure spending providing tailwinds [3]

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1. Commodity price volatility
   : The sustainability of the rally depends on whether central banks can achieve a “soft landing”—if high raw material costs resurface inflation, a return to hawkish policy could abruptly end the rally [5]

2. Energy sector headwinds
   : Oil price weakness represents a significant risk, particularly with potential supply increases from Venezuelan production restart affecting Canadian heavy oil [9]

3. Valuation normalization
   : Canadian stocks’ relative valuations have partly normalized, though they remain attractive on a relative basis [9]

4. USMCA renegotiation risk
   : Failure to reach a deal in July 2026 could have “a major negative impact” on the Canadian economy [7]

5. Real estate weakness
   : The sector declined
   3.31%
   on January 12, 2026, reflecting ongoing challenges in Canadian property markets [11]

While the TSX has less concentration risk than the S&P 500 (where the “Magnificent Seven” drive a disproportionate share of returns), investors seeking defensive positioning should focus on careful stock and sector selection rather than broad index exposure [9].

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The TSX’s exceptional 2025 performance reflects a confluence of favorable factors: commodity price strength, accommodative monetary policy, sector composition alignment with macro trends, and relative valuation attractiveness. For 2026, the market appears positioned for continued growth—albeit at a more muted pace—as earnings growth becomes the primary driver rather than multiple expansion.

1. Diversification benefit
   : The TSX provides meaningful diversification from U.S. tech-dominated markets
2. Commodity exposure
   : The index offers direct exposure to the ongoing commodity supercycle themes
3. Income generation
   : Canadian banks and dividend-paying stocks remain attractive for income-focused investors
4. Selective approach
   : While the broad outlook is positive, sector and stock selection will be critical given varying individual catalyst exposure

The TSX’s record highs represent not merely a short-term rally but potentially a structural shift in relative performance, driven by the index’s core exposures aligning with the macro environment of the mid-2020s.

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[0] Market Indices Data (API) - January 12, 2026

[1] Morningstar Canada - “Canada’s Stock Market Hit Historic Highs in 2025” (https://global.morningstar.com/en-ca/markets/canadas-stock-market-hit-historic-highs-2025)

[2] Guardian Capital - “Macro Musings: Tailwinds and Tightropes - January 2026” (https://www.guardiancapital.com/investmentsolutions/insights/macro-musings-january-2026/)

[3] Guardian Capital - Sector Performance Data, 2025

[4] Yahoo Finance Canada - “TSX starts positive in 2026 following record-breaking year” (https://ca.finance.yahoo.com/news/tsx-set-positive-2026-open-145040122.html)

[5] Observer Reporter - “FTSE 100 and TSX Smash Records as Mining and Energy Titans Lead Global Rally” (https://stocks.observer-reporter.com/observerreporter/article/marketminute-2026-1-6-commodity-supercycle-20-ftse-100-and-tsx-smash-records-as-mining-and-energy-titans-lead-global-rally)

[6] Richardson Wealth - “2026 Outlook: Questions on the year ahead” (https://richardsonwealth.com/insights/investorstrategy/2026-outlook-questions-on-the-year-ahead/)

[7] RBC GAM - “Global Fixed Income Markets - New Year 2026” (https://www.rbcgam.com/en/ca/article/global-fixed-income-markets-new-year-2026/detail)

[8] Financial Post - “Stocks to watch with TSX expected to hit new highs in 2026” (https://financialpost.com/news/tsx-expected-to-hit-new-highs-2026)

[9] BMO Economics - “TSX: Golden Years?” (https://economics.bmo.com/en/publications/detail/7870c704-f8fa-4551-a8eb-b96923995a15/)

[10] Edward Jones - “2026 Forecasts Positive Returns for Canadian Investors” (https://www.edwardjones.ca/ca-en/why-edward-jones/news-media/press-releases/edward-jones-forecasts-positive-returns-canadian-investors-2026-despite-global-uncertainties)

[11] Sector Performance Data (API) - January 12, 2026