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In this issue:
- Global Equity Market Performance
- Gold 2024
- Gold 2025
- The S&P/TSX 60
- Management
- Wrapping Up
Global Equity Market Performance
Once again, the S&P/TSX 60 outclassed the S&P 500, up 5.2% versus 2.8%. Canada wasn’t the top performer as MSCI Emerging Markets ripped 7.5% higher. MSCI EAFE was the laggard, trailing the pack, up 2.6%.
That performance by MSCI Emerging Markets puts it in first place as of the end of the third quarter, up 24.1%.
The S&P/TSX is now 22.4% higher, MSCI EAFE 21.4% and the S&P 500 12.5%.
As of this writing—the second week of October—our systems are indicating positive momentum in all four equity markets.
If you would like to stay current on our measures of trend and momentum in the markets we follow, please click here.
Stocks are doing well, but that isn’t the shiniest thing in our portfolios. Gold finished September 47.9% higher on the year. This letter will follow up on last year’s October edition that covered the multi-currency breakout in gold and what it means for the Canadian stock market.
Gold 2024
At this time last year, gold was trading over USD 2,600, 27% higher on the year. At the end of this September, it was USD 3,860. Earlier in 2024 it had broken to new highs and was up 30% versus the Canadian dollar, 26% euro and 30% Japanese yen.
It was beating stocks, with the S&P 500 up 20.6% at that time. It’s hard to beat the S&P 500, but the shiny metal is doing it again this year.
Gold 2025
In 2024, bitcoin was performing like gold is now. This year, roles have reversed. Year to date, bitcoin is up 24.7%.
All these assets are allocated to our portfolios. They are an example of the ‘good’ kind of diversification. That would be defined as assets that have an expected positive return and do not all move in the same direction at the same time.
Let’s see what’s contributing to the outperformance of the S&P/TSX 60, one of our core holdings.
The S&P/TSX 60
The top five precious metals miners make up 10.5% of the S&P/TSX 60 index. Agnico Eagle Mines is the index’s seventh largest holding at 3.4%. The other four are Barrick Mining (2.3%) Wheaton Precious Metals (2.0%) Franco-Nevada (1.6%) and Kinross Gold (1.2%).
All of them are up between 85% and 163% so far this year. A weighted average of their performance is up 112.2%. That return, multiplied by their weight in the index means that of the 22.4% return of the entire index, 11.8%, or more than half, can be attributed to the miners.
Adding the Canadian banks, which comprise over 25% of the index, gives you a sense of why Canada might be outperforming the S&P 500. BMO’s Equal Weight Banks Index ETF (ZEB) is up 27.5% on the year. A 27.5% return on 25% of the index means that they’ve contributed 6.9% to the return.
Finally, another contributing factor to this outperformance is Shopify (SHOP). It’s 7.6% of the index and 34.9% higher this year – this one stock has added 2.7% to the index return.
Over 43% of the index is twelve companies, which have contributed to almost all of the S&P/TSX 60’s performance this year, 21.3% of 22.4%.
We often read about the concentration of the Magnificent Seven stocks in the S&P 500. NVIDIA, Microsoft, Apple, Amazon, Meta, Alphabet and Tesla. They have a combined weight of 34.4% in a 500-stock index. The Roundhill Magnificent Seven ETF (MAGS) is up 17.5% in 2025. That means 6.0% of the S&P 500’s 12.5% return, or almost half, can be attributed to these seven stocks.
By both measures, index weight and contribution to returns, the S&P/TSX 60 appears to be more concentrated.
It’s good to know what your risk is in this business.
What to do?
Management
We manage some of our portfolios with an active risk management system. If our models indicate that our equity index holdings are heading into a potentially drawn-out downtrend, we reduce holdings and go to cash or in some cases, bonds. That’s not the case now.
Another part of our risk management process is rebalancing. We have target allocations for all assets. As they perform relatively to each other, the actual holdings will vary from those targets. Once they breach a defined level, we rebalance. In simple language: we sell the outperformers to buy the underperformers.
As in many of these cases, our process dictates what we do. So that’s what we will do. Which, for now, is nothing.
October So Far
The moment for rebalancing, however, may be soon. So far this month, as of October 14, gold is up 8.1%.
Before the tariff tantrum in early April, gold was up almost 20%. On Friday, October 10, Trump posted on social media that he was disappointed in how China was responding to tariff negotiations and said he would crank up tariffs to 100%. Stocks fell almost 3% and haven’t regained their losses. As of October 14, they are down slightly on the month. Gold is up 4.2% since.
In local news, PM Carney visited the White House on October 7. As far as we know, nothing of substance regarding tariffs came out of those meetings.
On October 14, the U.S. announced an additional 10% tariff on Canadian lumber. This on top of the existing duties. According to the B.C. Lumber Trade Council, that brings the total to over 45%.
It could be inferred that any elbows-based strategy employed by Carney was not appreciated at the White House.
Wrapping Up
We are living in interesting times. Gold is making all-time highs on a regular basis, against every currency on the planet. Stocks continue to make all-time highs as well.
What is driving gold is a topic for another letter. But as they say: the trend is your friend.
Compared to gold, a dollar is worth just over half of what it was a year ago.
It’s baseball playoff season, so why wouldn’t we have a Yogi Berra quote to wrap this up.
A nickel ain’t worth a dime anymore
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