The Canadian Stock Market's 30,000 Milestone: Is This a Sustainable Bull Run or a Correction-Waiting-to-Happen?

The S&P/TSX Composite Index, Canada's benchmark equity gauge, has surged to within striking distance of the 30,000 milestone, closing at 29,768.36 on September 19, 2025 Market today: S&P/TSX composite closes week …^[2]. This marks a 25.52% gain over the past year TSX hits another record high as rate cuts offset valuation …^[3], driven by a confluence of monetary policy optimism and sector-specific strength. Yet, as the index approaches its 52-week high of 29,957.33 TSX hits another record high as rate cuts offset valuation …^[3], investors face a critical question: Is this rally underpinned by sustainable fundamentals, or is the market pricing in a future that may not materialize?

Momentum: A Recovery Fueled by Policy and Sectors

The index's recent ascent reflects a sharp rebound from a trough of 24,115.30 in April 2025 Market today: S&P/TSX composite closes week …^[2]. This recovery has been propelled by two key factors: expectations of interest rate cuts and robust performance in base metals. Central banks, including the Bank of Canada, have signaled dovish intentions, with rate cuts priced into asset valuations TSX hits another record high as rate cuts offset valuation …^[3]. Meanwhile, energy and materials sectors—weighted heavily in the index—have benefited from global demand for commodities, particularly copper and nickel, as green energy transitions gain momentum TSX hits another record high as rate cuts offset valuation …^[3].

The momentum is further underscored by the index's proximity to its all-time high. As of September 19, the S&P/TSX Composite stood at 99.3% of its 52-week peak TSX hits another record high as rate cuts offset valuation …^[3], suggesting a market in a strong uptrend. However, such momentum often precedes overvaluation, particularly when earnings growth lags price gains.

Valuation: A Tug-of-War Between Optimism and Caution

The index's valuation metrics tell a mixed story. Its trailing price-to-earnings (P/E) ratio of 19.42 as of September 9, 2025 Canada Stock Market: current P/E Ratio^[1], exceeds its 5-year average of 15.37 Canada Stock Market: current P/E Ratio^[1], signaling a premium. This premium is even more pronounced when considering the cyclically adjusted P/E (CAPE) ratio of 21.84 TSX hits another record high as rate cuts offset valuation …^[3], which adjusts for multi-year earnings volatility. By historical standards, these ratios place the market in “expensive” territory, with the P/E ratio exceeding two standard deviations from its mean Canada Stock Market: current P/E Ratio^[1].

The absence of a price-to-book (P/B) ratio for the index as of September 19 complicates a full valuation assessment TSX hits another record high as rate cuts offset valuation …^[3]. However, sector-level data—such as Royal Bank of Canada's P/B ratio of 2.12 TSX hits another record high as rate cuts offset valuation …^[3]—suggests that financials, a dominant component of the index, are trading at elevated valuations. This raises concerns about whether earnings growth, particularly in sectors reliant on commodity prices or interest rate sensitivity, can justify current multiples.

Sustainability: Can the Bull Run Continue?

The sustainability of this rally hinges on two critical variables: earnings growth and macroeconomic stability. While the index's 1-year return of 25.52% TSX hits another record high as rate cuts offset valuation …^[3] is impressive, it has been driven by a narrow subset of sectors. Energy and materials account for over 30% of the index's weight TSX hits another record high as rate cuts offset valuation …^[3], leaving it vulnerable to commodity price swings or regulatory headwinds.

Moreover, the market's reliance on rate-cut expectations introduces fragility. If inflationary pressures persist or global growth disappoints, central banks may delay easing, forcing investors to reassess risk premiums. This dynamic was evident in late 2023 and 2024, when earnings declines pushed the P/E ratio down to 19.36 TSX hits another record high as rate cuts offset valuation …^[3], a level now being exceeded in 2025.

Conclusion: A Delicate Balance

The Canadian stock market's push toward 30,000 reflects a blend of justified optimism and speculative fervor. While monetary policy tailwinds and sector-specific tailwinds have fueled momentum, valuation metrics suggest caution. Investors must weigh the likelihood of sustained earnings growth against the risks of a correction if macroeconomic conditions deteriorate. For now, the index's trajectory appears supported by fundamentals, but history reminds us that momentum-driven markets often correct when narratives shift.