Can the great TSX Index rally of 2026 continue through September, a historically choppy period for financial markets? Or will that much-feared correction (or maybe something that’s a bit worse) be in the cards, as lofty valuations across the board look to be reset to the downside?
Indeed, these are questions that, unfortunately, nobody has answers to, but the good news for investors is that you don’t need to have foresight into what stocks will do next week or month to do extraordinarily well in markets over time. All you need is the right mindset and a focus on the long-term game so that you know how to react when investors are frozen in fear. Arguably, it’s better to freeze than to hit that sell button when panic strikes, at least when it comes to stocks that you still believe in.
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The TSX rally has been incredibly robust
Regardless of what causes the next crash or correction, do prepare for scary headwinds that might just cause you to question whether things really are different this time around. Whether it’s a viral outbreak with pandemic potential, the threat of higher rates, a recession, war in the Middle East, or something else, there are a lot of things that could nudge stocks lower. I have absolutely no idea if the TSX rally can make it through this coming volatile stretch (late August and September) without taking a big tumble.
Arguably, the stage is already set for a nice pullback, with a bit of jitteriness hitting the big Canadian bank stocks while some of the midstream energy names see their shares face a reversal of momentum. In my view, it makes sense to be a buyer in spite of the TSX rally, stretched multiples, and, of course, September’s reputation for wreaking havoc on stocks.
In fact, I’d argue that it makes sense to be a buyer with the expectation that you’ll take a hit immediately after so that you can be ready to buy more on the way down. Like sailing the rough seas, you’ll need to have a game plan to make it through to the calmer waters.
In this piece, we’ll look at two names worth buying, even as the great rally were to end tomorrow:
TD Bank
Shares of TD Bank (TSX: TD) and the rest of Canada’s big banks took a beating this week, down close to 6%. And its quarterly earnings report hasn’t even been revealed yet. Indeed, it’s a rather uneasy tone set ahead of a big round of earnings in late August. And while it feels like the beginning of the end for the banks, I’d be willing to argue that things might actually be better than feared now that valuations are cooling off.
Of course, 18.9 times trailing price-to-earnings (P/E) is still a high price to pay for a bank stock. If earnings go terribly in late August and September sees a market-wide correction, perhaps TD Bank will be back at bargain prices. At this juncture, it feels like investors are rushing to get out well before the biggest nail-biter of the year for banks and the TSX as a whole.
In my view, nibbling a bit here and more through September, especially if earnings tank the stock further, could be the play. And if the TSX keeps on going, the 6% discount might be as good as it gets before the next big bank rally.
