Toronto market seen higher if economic downturn not too severe

TORONTO, Nov 29 (Reuters) – Canada’s main stock index will rise next year and hit a record high in 2024 as inflationary pressures ease and an expected slowdown in the domestic economy is not too deep, a Reuters poll found.

Over the next six months, however, most analysts who answered separate questions expected corporate earnings to worsen as the economy weakens and begins to digest a rapid series of interest rate hikes from the Bank of Canada.

The average forecast of 21 portfolio managers and strategists was for the S&P/TSX Composite Index (.GSPTSE) to advance nearly 8% to 22,000 by the end of 2023, compared with 21,000 expected in a previous poll in August.

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It was then expected to reach 23,000 by mid-2024, surpassing the record of 22,087.22 set on March 29 this year.

“If the recession doesn’t prove severe, equity markets could stabilize even as economic data and earnings sink,” said Angelo Kourkafas, investment strategist at Edward Jones in St. Louis, Missouri.

The Bank of Canada has forecast the economy will grow less than 1% next year after it raised interest rates to a 14-year high of 3.75% to meet rising inflation.

Canada’s economy is likely to be particularly vulnerable to higher rates after households borrowed heavily during the pandemic to participate in a red-hot housing market.

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But some recent data has pointed to a peak in price pressures, while the BoC has opened the door to a slower pace of tightening.

“We think inflation will moderate in the coming quarters, enabling the BoC to pause, which in turn will remove upward pressure on bond yields,” Kourkafas said.

Canada’s 10-year yield, the benchmark for Canadian corporate borrowing costs, has more than doubled this year to 2.94%.

The Toronto market is down about 4% since the start of the year but that’s far less than some other major markets, largely due to a heavy weighting in energy stocks. The index is up about 14% since mid-October.

“While corporate earnings are likely to decline for many industries, we see continued earnings growth across most commodities,” said Arthur Salzer, chief executive officer of Northland Wealth Management.

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Adding to investor euphoria, the TSX closed above its 200-day moving average for the first time since May 4 last Wednesday.

“Through important technical resistance now with the TSX Composite … we have now started a new bull market for Canadian stocks,” said Brandon Michael, senior investment analyst at ABC Funds.

(Other stories from the Reuters Global Stock Market Poll Package 🙂

Reported by Fergal Smith; Polled by Sanaya Sarkar and Sarupya Ganguly

Our Standards: The Thomson Reuters Trust Principles.

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