Do you know your stock market? Here’s a short quiz

Well, it’s mid-October and the kids are back at school. I still have two children in university, and it seems there is always a mid-term exam around this time of year. So, in the spirit of camaraderie with my two youngest, it is time for a Financial Post mid-term exam on the stock market. Don’t worry, you won’t get marked. But there are wrong answers!

Question 1: What are the best-performing sectors in Canada and the United States so far this year?

Answer: Many investors might have answered “technology,” as that sector has clearly been on a roll for three years. But they would be wrong. Energy is the best-performing sector so far in both Canada and the U.S. In Canada, the TSX Energy sector is up about 33 per cent this year, and in the U.S. the energy sector is up about 50 per cent. Of course, multiple wars and supply issues have helped commodity prices, which in turn have driven up the energy sector. Energy stocks in Canada have also been helped by corporate takeovers, such as the big deals for MEG Energy Corp. and ARC Resources Ltd., and last week’s announcement of a takeover of Athabasca Oil Corp.

Question 2: Earnings growth has been driving the markets this year, and that’s great. But what are the earnings expectations for next year?

Answer: Depending on the source, 2027 should be another good year, at least in terms of corporate earnings growth. The stock market usually follows earnings growth, but that is hardly a guarantee. Still, investors in the U.S. are anticipating 2027 earnings growth in the 16 per cent range, and in Canada investors are counting on 11 per cent to 12 per cent earnings growth. Will this be enough to drive stock markets to another decent year? This is unknown, of course, but we at 5i Research think the outlook might be more dependent on what inflation does than on earnings, at least in the short term.

Question 3: Right now, the best one-year Guaranteed Investment Certificate rate in Canada, available at a few small credit unions and virtual banks, is four per cent. If you invest in the stock market, what sort of yields are available right now in comparison? What is the relative cost of a lower stock dividend versus a guaranteed return?

Answer: In this volatile market, the TSX Composite index yields about 2.09 per cent, the S&P 500 yields about 1.05 per cent, the Dow Jones yields about 1.54 per cent and the Nasdaq Composite yields about a paltry 0.53 per cent. Keep in mind that dividends can get taxed at better rates, especially in Canada, so these are not direct after-tax comparisons. Still, “safe” yields are still averaging more than twice those available in the stock market right now.

Question 4: It has been a good year for many stocks. But do you know the best-performing year-to-date stocks, as of Thursday, on the TSX, the Nasdaq, the Dow Jones and the S&P 500 indexes?

Answer: For this answer, we are only looking at companies within the indexes. But for Nasdaq, we will limit our answer to the Nasdaq 100 index. If we include the Nasdaq Composite index, we find some tiny stocks up many thousands of percentage points this year. For the TSX, the winner as of Thursday is Bird Construction Inc., up about 160 per cent on the back of new contracts and data centre business. For the S&P 500, the winner is Moderna Inc., that former COVID vaccine winner, now up about 660 per cent as its cancer vaccine potential gains traction with good clinical results. For the Nasdaq 100, the winner is also Moderna, but after it comes Sandisk Corp., up about 524 per cent this year. It has soared with memory prices. For the Dow Jones, the winner is Cisco Systems Inc., up about 47 per cent this year.

Question 5: What is the most-widely owned stock in the U.S. and in Canada?

Answer: Unfortunately, there is no common definition of “widely-owned.” The answer may be different if you are talking about individual holders or declared fund holders, or even looking at holdings in brokers such as Robinhood Markets Inc. In the U.S., the most plausible answer is Apple Inc., being a core holding in many indexes, pension funds and exchange-traded funds. It has been called the most universally held equity in America. Apple shares are up about 26 per cent this year, and it has a market capitalization (hit just this week) of US$5 trillion. In Canada, the best practical answer is Royal Bank of Canada, currently Canada’s largest company by market value. Millions of Canadians own Royal Bank shares and they are up about 17 per cent this year, with market capitalization of about $380 billion.

Peter Hodson, CFA, is founder of 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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