Where Returns Have Come From

The exceptional three-year performance of Canadian and U.S. equities has been driven by unusually narrow leadership, raising questions about how repeatable those returns are.

• From July 2023 to July 2026, the S&P/TSX Composite returned 86% cumulatively and the S&P 500 about 70%, or 81% in Canadian-dollar terms.
• In Canada, Financials, Energy and Materials generated about 80% of the TSX’s three-year return; Financials alone contributed 44%, led by RBC, TD, CIBC, BMO and Scotiabank, while the top 10 stocks accounted for 46%.
• Canadian concentration intensified in 2026, with the three leading sectors producing 92% of the return and the top 10 stocks contributing 65%; Shopify, a top-three contributor over three years, became the largest year-to-date detractor.
• In the U.S., Technology generated 46% of the three-year return and Technology plus Communication Services 58%; Nvidia contributed 10.6 percentage points, while the top 10 stocks supplied 52%.
• U.S. market breadth improved in the first half of 2026, when 46% of S&P 500 constituents outperformed the index versus roughly 28% to 31% in each of the previous three years, although leadership remained concentrated in memory and semiconductor stocks such as Micron, SanDisk, AMD and Intel.

Takeaway: Investors should distinguish beta from skill, avoid allowing recent winners to create excessive concentration, and reassess whether current leaders can continue outperforming; Canadian banks appear particularly exposed after a 6.7% decline from their July highs, while improving U.S. breadth may create opportunities beyond the AI leaders.