This flow of new funds into stocks is certainly helping markets move higher.  The table below shows the performance of major markets over recent periods.  The strength of the German (DAX) and Japanese (NIKKEI 225) stock markets have been particularly impressive.

Market Performance March 13, 2013

But the chart also shows how the Canadian (S&P/TSX) and Chinese stock markets have lagged the others over the past periods.  This was due to the weakness in the commodity space.  The TSX Resource sectors of the market (Energy & Materials) have been a significant drag on the Canadian stock market’s performance over the last two years.  Energy and Materials make up more than 40% of the composite’s weight and have clipped ~6–8 percentage points from the TSX’s performance in each of the past two calendar years.  This has continued in 2013, where the Resource sector has trimmed another 4 percentage points from the overall performance.

Yet, leading economic indicators suggest that the commodity complex should remain supported.  Higher commodity prices should help tilt the TSX/S&P 500 relative earnings performance profile toward the TSX, which in turn should provide a tailwind for Canadian equities.  Fading fears of a Chinese hard landing and financial collapse in Europe joined with a general upturn in global leading data remain strategic supports for commodity demand, prices, and, hence, the TSX.  Canadian optimists, a rare breed in many industries, can point to the very recent performance of some of the cyclical stocks and might, finally, be seeing a turn upward.  The momentum has certainly not been there as foreign investors have been selling their resource holdings and shifting to the ‘safe haven’ of defensive, dividend-paying stocks.  That can be seen in the chart below (which compares the performance of the ‘early cyclical’ stocks in the S&P500 index to the rest of that same index).  The U.S. is generally a good lead indicator for what might happen up here as well.

Canadian Resource Stocks

1 2 3 4