The S&P/TSX composite index is still languishing near its pre-crisis highs, making the past decade one of the worst 10-year stretches in the post-war period, according to a recent study from the Bank of Montreal.

And things may not get better anytime soon.

Since 2007, the TSX index has risen less than 1 per cent annualized, owing largely to the ripple effect of the 2008 crisis and the global oil supply glut, said BMO senior economist Robert Kavcic.

“The negatives of the oil shock and recession have pretty clearly outweighed the positives. Those two very significant macroeconomic shocks in that 10-year period pulled down the long-term trend,” he said.

Oil sector

From bottoming out in the 1990s, Kavcic said, oil prices rose through 2007. As the recession hit, “you saw the oil sector rising in the overall share of the TSX. Then, around 2014, you would have had max exposure to energy in the exchange, just as the oil price shock came.”

Though the exchange has been buoyed to some extent by financials, for the TSX to gain from here, the largest economic expansion in post-war history would have to continue, Kavcic said.

“If there was a negative oil supply shock globally, the TSX would disproportionately benefit from that, just as it has disproportionately suffered over the past couple years. That’s the simplest way to get a prolonged period of TSX out-performance but, it’s also the least probable.”

That kind of commodity-led rebound may take some time to materialize, according to Scotiabank portfolio strategist Vincent Delisle.

“The next secular long-term TSX outperformance stint will need much higher commodity prices,” Delisle said, cautioning that might not happen “until the early 2020s.”

The BMO report noted the only non-commodity driven boom for the TSX since the end of the Second World War was in the 1990s, when Nortel and other technology firms led the way.

Tech sector

“Where the technology sector sits, we don’t see a potential range of players to be as big as Nortel or even RIM, a few years ago, were. We’re looking at a smaller cap space in terms of what the technology sector can do. I don’t think it can offset the housing and commodity problems,” said David Tulk, portfolio manager at Fidelity Investments.

As for the rest, Kavcic said, “We don’t typically carry a lot of weight in consumer discretionary, healthcare, industrials or staples. Most of those are founded and listed south of the border.”

Some are more confident the TSX trend can turn around. “From 2007 to 2017, there’s been one massive global recession and a recession in Alberta — it’s really not surprising that the TSX has lagged. But, if you look at the trend in 2004 or 2005, during the supercycle, it looks different,” TD senior economist Michael Dolega said. “I think we’ve seen the bottom of the commodities market and, with financials doing a bit better, I think the TSX is poised for decent growth overall.”

Though Dolega acknowledged that there are excesses in the housing market, he said that fundamentally it remains strong.

However, Tulk said that with a lackluster technology sector, a seemingly persistent oil glut and serious housing risks, the future isn’t bright for the TSX.

“Structurally, what’s under the surface to drive a sustained TSX outperformance? Aside from low expectations, there isn’t much.”

“As the housing sector cools and it starts to look more like a rate-driven cycle, it leaves us looking elsewhere in the TSX and the wider economy for leadership,” Tulk said. “Maybe energy prices can rotate back but we’re not confident about that. That leaves us with a lack of leadership that contributes to a sustained period of economic under-performance. That combined narrative means the Canadian economy faces bigger challenges over the next few years than we’ve seen this past decade.”