TSX Breaks Out: Canadian Stocks Set for Rally as Key Levels Hold and Inflation Eases

The S&P/TSX Composite Index has entered a pivotal phase, surging to a record high after a historic 10-day winning streak—the longest since late 2021—while breaking through the psychologically critical 26,000 resistance level. This technical breakout, fueled by robust sector-specific momentum and favorable macroeconomic conditions, signals a compelling entry point for investors seeking long-term gains.

The Technical Catalyst: A 10-Day Rally with Legs

The TSX’s 10-day surge—a 4.42% gain—has not only erased fears of a correction but has also pushed the index to an all-time high of 26,055.63. This momentum is no fluke: the index has risen on 11 of the past 12 trading days, with year-to-date gains of 5.37%. Analysts highlight this streak as a technical validation of broader investor confidence, particularly in sectors positioned to benefit from Canada’s economic recovery and global demand shifts.

Sector Momentum: Mining and Utilities Lead the Charge

The materials sector, led by gold miners and base metals producers, has been the primary driver of the rally. New Gold (NGD) and Dundee Precious Metals (DPM) are standout performers, benefiting from rising gold prices and geopolitical uncertainty. Meanwhile, utilities and infrastructure stocks like Stella-Jones (SJ)—a timber products leader for rail and construction projects—are capitalizing on Canada’s infrastructure spending boom and the push for decarbonization.

Macroeconomic Tailwinds: Inflation Eases, BoC Rate Cuts Loom

The TSX’s ascent is underpinned by macroeconomic optimism. Canada’s inflation rate has cooled to a 2.3% annual pace—within the Bank of Canada’s (BoC) 1-3% target range—raising expectations of rate cuts as early as Q3 2025. A dovish BoC would reduce borrowing costs, boost equity valuations, and support sectors like utilities and infrastructure.

Strategic Plays: Gold Miners and Infrastructure Stocks to Watch

1. Gold Miners:
2. New Gold (NGD): With exposure to high-grade assets and a dividend yield of 1.8%, NGD offers dual upside from rising gold prices and stable payouts.

3. Dundee Precious Metals (DPM): Its Bisha mine in Eritrea delivers strong cash flows, and the stock trades at a 30% discount to its five-year average price-to-book ratio.

4. Utilities and Infrastructure:

5. Stella-Jones (SJ): A leader in treated timber products for railways and renewable energy projects, SJ benefits from Canada’s $50 billion infrastructure plan. Its dividend yield of 2.1% and strong free cash flow make it a defensive yet growth-oriented play.

Caution: Rate-Sensitive Sectors Face Headwinds

While the TSX’s rally is broad-based, energy and financials lag due to sector-specific headwinds. Oil prices remain volatile amid OPEC+ cuts and U.S. shale output, while banks like Royal Bank of Canada (RY) face margin pressure as deposit costs rise. Investors should avoid overexposure to these sectors until clarity emerges on commodity pricing and BoC policy.

Why Act Now?

The TSX’s technical breakout, combined with declining inflation and the prospect of BoC easing, creates a rare confluence of factors for sustained gains. Historically, the TSX has averaged a 7.2% return in the six months following a 10-day streak of gains, with 85% of such streaks leading to new yearly highs.

Final Call: Seize the Momentum

For long-term investors, this is a strategic moment to position portfolios in gold miners and infrastructure stocks, which offer both growth and resilience. While volatility may persist in May—a historically choppy month—the TSX’s fundamentals and sector-specific tailwinds suggest this rally has further to run.

The question isn’t whether to act—it’s how quickly you can capitalize on Canada’s next chapter.

Investors should conduct due diligence and consider their risk tolerance before making investment decisions.