TSX gain a blip?

February is now in the record books and guess what? With two months gone in 2004, the TSX is one of the top-performing markets in the world. We’re not number one, but we’re doing well.

At the close of trading on Friday, Feb. 27 the S&P/TSX Composite Index was up 6.9 per cent for 2004 according to figures compiled by Globeinvestor.com. That was miles ahead of the S&P 500 (+3 per cent), the Nasdaq Composite (+1.3 per cent), and the Dow (+1.2 per cent). Our small-cap stocks were also doing better than those in the U.S. The S&P/TSX Venture Index is ahead 7.9 per cent for the year, compared to an advance of 5.1 per cent in the Russell 2000, its American counterpart. So Bay Street is doing very well compared to Wall Street.

How about the rest of the world? The real powerhouse so far has been the Finnish market which is up 16.5 per cent but it is such a small player that is below most investors’ radar screens. Closer to home, the hottest market on the continent is that of our other NAFTA partner, Mexico, where the Bolsa has advanced 13.7 per cent this year. In Asia, Hong Kong’s Hang Seng Index is ahead 10.6 per cent while Singapore’s STI Index is up 7 perent. The big European markets are trailing behind.

The main source of TSX strength comes from a rather surprising sector: information technology. The S&P/TSX Capped Information Technology Index is up over 39 per cent this year, which is the biggest advance by far among the sub-indexes. Nortel (TSX:NT) is one of the main components of this index and it has been a big gainer in 2004, almost doubling in value. But several other index components have also registered huge gains, including Open Text (TSX:OTC), Research in Motion (TSX:RIM), and Sierra Wireless (TSX:SW).

This concentration on information technology suggests that the TSX is vulnerable going forward. Most analysts agree that high-tech stocks are getting ahead of themselves and are due for a pull-back. Unless some other sector of the Canadian market is able to pick up the slack when that happens, we could be in for some rough times ahead.

Right now, there are no obvious candidates. The gold sector, which was so strong in 2003, is in negative territory so far this year. Metals and mining is also down. The energy, financial services, and heath care sectors have all done reasonably well, but none is significantly ahead of the overall index.

So let’s not get too excited about what we have seen from the TSX so far. It would be nice to think it’s a portent of more to come but the reality is that it’s more likely only a temporary blip.

This article originally appeared in the Internet Wealth Builder.