Reuters Poll: Canada’s TSX Seen Rising to Record High Next Year

Canada’s main stock index is expected to rise only marginally by the end of the year, but then extend its record-setting rally in 2022 as global economic expansion underpins growth in corporate earnings, a Reuters poll found.

The median prediction of 26 portfolio managers and strategists polled on Aug. 11-24 was for the S&P/TSX Composite index to rise 0.4% to 20,550 by the end of 2021, above May’s forecast of 20,050 but shy of this month’s record high at 20,567.11.

It was then expected to advance to 22,000 by the end of 2022.

“We believe that the (economic) cycle has plenty of mileage left, and that over the next 18 months the Canadian economy is expected to continue to grow at an above-trend pace,” said Angelo Kourkafas, investment strategy analyst at Edward Jones.

The Bank of Canada expects Canada’s economy to expand 6.0% this year and then by 4.6% in 2022, while investors who responded to some additional questions saw corporate earnings rising over the coming 12 months.

“Corporate profits are rising at a fast pace, the full reopening of the economy is still ahead of us, and interest rates are very low,” Kourkafas added. “All that means that the uptrend in stocks is likely to continue, but with occasional shakeouts.”

The Toronto market has been pressured in recent days by worries that the spread of the Delta variant of the coronavirus would slow the global economic recovery, and signals from the Federal Reserve that it could reduce stimulus by the end of the year.

A snap Canadian federal election called for Sept. 20 could also be a headwind, particularly if there is uncertainty about the outcome. Mail-in voting is set to soar, delaying the final result.

Still, investors say the big picture is favourable.

“Massive fiscal stimulus, low interest rates and tremendous household savings provide a positive backdrop for the global economy and stocks,” said Stan Wong, a portfolio manager at Scotia Wealth Management.

The Toronto market is particularly sensitive to the pace of economic activity, with a heavy weighting in so-called cyclical stocks, including resource shares. The materials and energy sectors account for around 22% of the Toronto market’s value, compared with about 4% for the S&P 500.

“I think once the market gets through the seasonally weak August-October (period) the market should resume its move higher, led by the cyclicals, which should see the TSX outperform the S&P 500,” said Greg Taylor, a portfolio manager at Purpose Investments.

(Reporting by Fergal Smith; Polling by Sujith Pai and Indradip Ghosh; Editing by David Holmes)

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