This is not what a commodity boom is supposed to look like.
With US$100 oil, US$1,600 gold, US$30 silver and US$3.40 copper, these should be wonderful times for the materials-heavy S&P/TSX composite index. And indeed, the companies producing these commodities are raking in terrific profits.
It just hasn’t mattered. This year marks the first time since 2003 that the TSX composite underperformed the S&P 500, an index that boasts a lot more diversification and a lot less volatility. Canadian stocks simply have not held up as market uncertainty increased. At the close of trade Friday, the Dow Jones industrial average was up 5.5% for the year, the S&P 500 was flat and TSX closed 11.1% lower.
Investors wondering how that happened need look no further than the materials sector. Despite spectacular energy and precious metal prices, the stock performance was terrible as trading multiples sunk to historic lows. Throw in middling prices for other base metals, a natural gas glut, and a total collapse in the uranium equities (thanks, Fukushima), and you have a recipe for underperformance. The 76% slump in shares of Research In Motion Ltd. was the proverbial insult added to injury.
There is a silver lining here: dividends in the resource sector are going up, and that could be blueprint for future success.
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