Canada plays the wallflower as global stock markets party

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The bull market in stocks is sending major indexes around the world to multiyear highs – but not in Canada, where the equity benchmark has become a serial laggard.

As the U.S.-based Dow Jones industrial average surges to consecutive record highs, and European markets hover at their highest points in five years, the Toronto market is feeling the effects of softening global demand for commodities.

Mining, an industry that once gave Canada's benchmark index a boost over its U.S. counterpart, is now acting as a drag on its performance.

Meanwhile, a resurgent U.S. banking sector is helping to light a fire under U.S. markets.

The 30-member Dow rose for the 10th-straight day on Thursday, marking its eighth record high in a row. The broader S&P 500 is on a similar streak, and is within spitting distance of its own record high.

In Europe, Germany's DAX index and the U.K.'s FTSE 100 are at their highest levels since late 2007, despite the euro zone's recessionary conditions, as investors grow increasingly confident the euro zone will not burst apart. Even in hapless Japan, the Nikkei 225 has surged to its highest level since 2008, buoyed by a new government that has promised strong stimulus measures.

The global partying makes the performance of the Canadian benchmark index look pathetic by comparison: It is languishing 15 per cent below its record high, and is lower today than in 2011.

The S&P/TSX composite index and the S&P 500 began to diverge two years ago. Since then, Canadian stocks have fallen 9 per cent, while U.S. stocks have gained about 14 per cent.

For Canada, the downturn began with a slump in mining shares, brought on by concerns about slowing Chinese consumption and increased supplies of raw materials.

The Canadian materials subindex, which has a big weighting within the composite index, has tumbled 33 per cent over the past two years, even as the far-more diversified S&P 500 has been firing on all cylinders.

Canadian gold producers have been particularly hard hit, falling 45 per cent from their recent high in October, 2011. They have followed the path of gold, which hit a high of $1,900 (U.S.) an ounce that month but has since retreated about 16 per cent.

Now the performance differences between Canada and the United States are being widened by another sector: banks.

Canada's high-fliers are descending, while beaten-up U.S. lenders are stirring back to life.

In March, U.S. banks, as represented by the KBW bank index, have risen 5.8 per cent, versus a decline of 2 per cent for Canadian banks.

U.S. banks are recovering from a bear market that, even after recent gains, has knocked more than 50 per cent off their shares. They could see more gains ahead if the housing market recovers and the economy strengthens.

In contrast, Canadian banks are confronting a slowing housing market and an uncertain economy, both of which could weigh on earnings this year.

For Canadian investors, it is becoming increasingly difficult to ignore the Dow's impressive winning streak. The blue-chip index's 10th-straight day of advances marks the longest such string of gains since 1996.

However, Canadians tempted by the U.S. advance may want to be cautious. History demonstrates that it is by no means certain that the streak is going to take the Dow to spectacular new highs.

Bespoke Investment Group crunched the numbers for the first nine days of the Dow's winning streak, to get a glimpse of what the future holds.

According to the investment researcher's numbers, there have been 24 prior winning streaks of nine days or more for the Dow in the post-war period.

The Dow has averaged a gain of 0.5 per cent over the following week, with gains 64 per cent of the time. Over the following three months, it has averaged a gain of 2.5 per cent, with gains 68 per cent of the time.

In short, the period following an extraordinary winning streak for the Dow has been anything but extraordinary.