TSX's Recent Rally: Is Gold and Tech Leadership Sustainable Amid Geopolitical Risks?

The Toronto Stock Exchange (TSX) has surged 8.58% year-to-date (YTD) through June 2025, outperforming the S&P 500's meager 0.51% gain. This rally is fueled by two key sectors: gold miners and select technology firms, even as broader geopolitical risks loom. But can this leadership endure? Let's dissect the drivers, valuation gaps, and risks to assess the TSX's upside potential relative to U.S. markets.

Sector-Specific Drivers: Gold's Dominance and Tech's Nuanced Resilience

Gold: The Engine of the Rally
The TSX Materials sector, led by gold miners like Fortuna Mining (up 40%) and New Gold Inc. (up 35%), has been the primary catalyst. Gold prices hit $3,400/oz in early 2025, driven by geopolitical tensions (e.g., Iran-Israel conflict) and central bank buying (80 tons monthly). These miners now account for 8.9% of the TSX—far exceeding their 0.1% weight in the S&P 500. Goldman Sachs estimates central banks will absorb 1,000 tons annually, solidifying gold's structural tailwinds.

Tech: A Split Narrative
While the TSX Technology sector declined 12.73% in March due to tariff uncertainties, cloud providers like Microsoft (Azure) and Amazon (AWS) have thrived. AI-driven demand for compute infrastructure boosted these giants, with Azure and AWS growing despite broader sector headwinds. Meanwhile, Canadian tech laggards like Constellation Software and Celestica (down 0.8%–2.1%) highlight sector fragmentation.

Valuation Advantages: TSX's Undervalued Edge

The TSX trades at a 15.3x forward P/E—below its 10-year average of 16.6x—and offers a 2.8% dividend yield versus the S&P 500's 1.3%. This gap is stark compared to the S&P 500's bloated 21.5x P/E, which relies heavily on overvalued “Magnificent 7” tech giants (Apple, Microsoft, etc.). Canadian energy stocks like Suncor (12.6x P/E) and Hudbay Minerals (under 10x P/E) further underscore the TSX's value orientation.

Macro Risks: Geopolitics and Policy Uncertainties

Gold's Double-Edged Sword
While gold thrives on instability, prolonged geopolitical calm could unwind its rally. A U.S.-Iran rapprochement or a cooling of trade tensions (e.g., delayed U.S. tariffs on Canadian exports) might reduce demand for safe havens.

Tech's Tariff Traps
Canadian tech firms remain exposed to U.S. trade policies. Pharmaceutical tariffs, for instance, dragged down healthcare stocks like Eli Lilly, though the company's $160B U.S. manufacturing investment hints at mitigation strategies.

Carney's Policy Play
Prime Minister Mark Carney's Liberal government has proposed $130B in infrastructure spending and secured a 90-day tariff reprieve for Canadian industrials. This pivot toward economic resilience could stabilize the TSX, but execution risks linger.

Investment Takeaways: Navigating the TSX's Upside

1. Overweight Gold Miners
   With central banks as steady buyers and geopolitical risks unresolved, names like Fortuna Mining and Barrick Gold offer asymmetric upside. Their undervalued multiples (e.g., Newmont's 13x NTM P/E vs. a 20x historical average) add further appeal.

2. Target Tech's Cloud Leaders
   Microsoft and Amazon are secular winners in AI-driven cloud infrastructure. Their TSX-listed peers, such as Shopify (up 1.8% YTD in e-commerce), also merit attention for their global reach.

3. Avoid Tariff-Exposed Sectors
   Pharmaceuticals and semiconductors face near-term headwinds. Diversify into sectors insulated from trade wars, like consumer staples (Loblaw, benefiting from the “Buy Canadian” trend).

4. Monitor Geopolitical Catalysts
   The July 9 tariff deadline and Middle East developments are key inflection points. A resolution could unlock TSX industrials and financials, while escalation would boost gold's safe-haven allure.

Conclusion: TSX's Rally Has Legs—But Stay Nimble

The TSX's 8.58% YTD gain isn't a fluke. Gold's structural demand, tech's AI-driven niches, and undervalued valuations versus the S&P 500 justify cautious optimism. However, investors must balance these opportunities against geopolitical and policy risks.

For now, the TSX's mix of value, yield, and diversification makes it a compelling alternative to U.S. markets. But as the adage goes: “Don't fight the rally—just respect the risks.”

Risk Disclosure: Past performance does not guarantee future results. Investors should conduct their own research and consider their risk tolerance before making decisions.