The Sustained Bullish Momentum in the TSX: Is Now the Time to Ride the Wave?

The Toronto Stock Exchange (TSX) has entered a new phase of sustained bullish momentum, driven by a confluence of macroeconomic tailwinds, sectoral resilience, and evolving investor psychology. As of September 2025, the index has reached record highs, fueled by surging gold prices, strong earnings growth, and a global shift toward digitalization and artificial intelligence (AI) RBC Wealth Management, *2025 Midyear Outlook: Canada*^[1]. Yet, beneath this optimism lies a complex interplay of market psychology and strategic positioning that investors must navigate carefully.

Market Psychology: Optimism, Greed, and the Risk of Overconfidence

Investor sentiment on the TSX remains cautiously optimistic, with energy, technology, and financials leading the charge RBC Wealth Management, *2025 Midyear Outlook: Canada*^[1]. Gold mining stocks, such as Barrick Gold and Teck Resources, have benefited from elevated commodity prices, while tech firms like Shopify and Lightspeed Commerce are riding the AI-driven digitalization wave The Fool Canada, *What You Should Know: TSX Sectors Holding Strong in 2025*^[3]. However, this optimism is not without cracks. Global trade uncertainties and mixed sentiment surveys—such as the AAII's 43.4% bearish reading in early September 2025—highlight lingering caution among investors The Fool Canada, *What You Should Know: TSX Sectors Holding Strong in 2025*^[3].

Historically, bull markets are fueled by psychological dynamics like optimism and greed, which create self-reinforcing cycles of buying activity LBank, *The Psychology of Market Cycles*^[5]. For instance, the 2009–2020 bull market saw the TSX surge 330% as investors embraced tech innovation and post-crisis recovery narratives The Fool Canada, *What You Should Know: TSX Sectors Holding Strong in 2025*^[3]. Similarly, the 2022–2025 rally has been propelled by AI infrastructure and generative AI advancements, with market participants increasingly prioritizing growth over value The Fool Canada, *What You Should Know: TSX Sectors Holding Strong in 2025*^[3]. Yet, as behavioral biases like confirmation bias and loss aversion take hold, the risk of overvaluation and speculative bubbles grows LBank, *The Psychology of Market Cycles*^[5].

Trend-Following Strategies: Capturing Momentum in a Bull Market

Trend-following strategies, which capitalize on sustained price movements, have historically thrived in bull markets. These strategies, rooted in time series momentum—going long in rising assets and shorting declining ones—have demonstrated robustness across asset classes and economic cycles RBC Wealth Management, *2025 Midyear Outlook: Canada*^[1]. During the 2009–2020 bull run, trend-following ETFs like the Alpha Architect Value Momentum Trend ETF (VMOT) and managed futures funds outperformed traditional buy-and-hold approaches by adapting to directional trends RBC Wealth Management, *2025 Midyear Outlook: Canada*^[1].

In the current environment, trend-following strategies could benefit from the TSX's upward trajectory. For example, the energy and mining sectors, which have seen double-digit gains in 2025, align with trend-following principles of riding established momentum RBC Wealth Management, *2025 Midyear Outlook: Canada*^[1]. However, the effectiveness of these strategies depends on market conditions. While they excel in volatile, trending environments, they may struggle during periods of low volatility or abrupt reversals Traderlion, *What Fueled Every Major Bull Market in the Past 100 Years*^[2]. The recent 15.8% year-to-date rebound in communications services and consumer discretionary sectors underscores the potential for trend-followers to capture gains, provided they remain agile RBC Wealth Management, *2025 Midyear Outlook: Canada*^[1].

Balancing Psychology and Strategy: Is Now the Time to Invest?

The decision to ride the TSX's bullish wave hinges on balancing psychological insights with strategic discipline. On one hand, the market's resilience—evidenced by its ability to rebound from negative years (e.g., -5.84% in 2022) and maintain long-term growth—suggests that patience and trend-following could yield rewards Retire Happy, *TSX Historical Stock Market Data*^[6]. On the other, overexposure to high-flying sectors like AI-driven tech stocks, without regard for fundamentals, risks significant losses if sentiment shifts LBank, *The Psychology of Market Cycles*^[5].

Investors should consider a diversified approach that incorporates both trend-following and value-based strategies. For instance, the Dogs of the TSX strategy, which targets undervalued blue-chip dividend payers, has historically outperformed the broader index by 2.6% annually over three decades Traderlion, *What Fueled Every Major Bull Market in the Past 100 Years*^[2]. Pairing this with trend-following ETFs or managed futures could mitigate risks while capturing growth. Additionally, monitoring psychological indicators—such as extreme bullish sentiment or euphoria around AI—can help identify potential inflection points LBank, *The Psychology of Market Cycles*^[5].

Conclusion

The TSX's sustained bullish momentum presents opportunities for investors willing to navigate the interplay of market psychology and strategic execution. While optimism and trend-following strategies can amplify gains, prudence is essential to avoid the pitfalls of overconfidence and speculative excess. As the Bank of Canada's monetary policy and global trade dynamics continue to shape investor behavior, a balanced, disciplined approach remains key to riding the wave—and surviving the inevitable pullback.