Canadian investors entered 2018 hoping to see a powerful bull market continue to run. They left with their tails between their legs. The S&P/TSX Composite Index, which began the year above 16,300, wound up on pace for its worst year since the financial crisis of 2008, dropping more than 13 per cent to hover around 14,000 in late December. So what will 2019 have in store? The Financial Post asked six banks and investment firms for their 2019 TSX targets, and ranked them from high to low.
Laurentian Bank of Canada — 18,500 points
Both the U.S. and Canadian markets should be attractive to investors, Laurentian Bank of Canada chief economist Sebastien Lavoie said, because after all the barriers that have slowed down the S&P/TSX index are lifted in 2019, he expects a rally. Lavoie expects that by mid-year the U.S. and China will have ended their trade spat, at least when it comes to merchandised goods; the USMCA trade deal will be ratified and the energy industry will have recovered. Production cuts from OPEC as well as the provincial curtailment in Alberta and an expected increase in rail capacity should lead to the industry’s revival in 2019, he said. Lavoie, however, warns that there’s “no chance” of the TSX hitting his target without those catalysts.
BMO Capital Markets — 18,000 points
Investors spent so much of 2018 lamenting what they didn’t have — namely, a quicker rebound in oil prices and returning health to emerging markets — that they missed out on the good: improving earnings and expanding dividends, BMO Capital Markets chief investment strategist Brian Belski wrote. Investors still have a negative sentiment toward investing in Canada, but Belski is being contrarian because the market’s fundamentals remain strong. Should the S&P/TSX index reach 18,000 points as he’s projected, it would be an all-time high. And even then, Belski admits the projection may be too low “if/when the triggers that everyone seems to be waiting for are actually pulled.”
National Bank of Canada — 16,600 points
National Bank of Canada chief economist and strategist Stefane Marion is betting on the resurgence of global markets in 2019 and that should help boost the S&P/TSX index as well. Improvements in global markets, Marion said, usually result in the depreciation of the U.S. dollar, which should then lead to a rally in commodities prices. However, Marion admits that this is unlikely to happen without a resolution to the U.S.-China trade war, which has been baked into his target of 16,600 points. “There’s no way we can have this sort of target without having some sort of trade truce that is extended,” he said.
Russell Investments — 16,000 points
The S&P/TSX index’s performance in 2019 is tied to oil differentials, Russell Investments director of investment strategies Shailesh Kshatriya wrote, and moderation in the discount could relieve “negative tension currently afflicting Canadian equities.” The price gap between Western Canadian Select and West Texas Intermediate has narrowed to about US$15, but historic differentials of as much as US$50 plagued the market and weighed heavily on analyst earnings estimates, Kshatriya said. As oil prices plunged, Canadian equities were hit hard and oversold. As sentiment on equities begins to shift, investors could once again see some of the TSX’s “trapped value” being unlocked. There’s only one condition, Kshatriya writes: Oil prices must co-operate.
CIBC is walking the fine line of defensiveness
head of portfolio strategy Ian de Verteuil
CIBC — 15,600 points
CIBC’s head of portfolio strategy Ian de Verteuil admits there’s a cloud of uncertainty hanging over the market due to the U.S.-China trade war. “It’s anyone’s guess” what the conclusion will be, he wrote. So the bank is “walking the fine line of defensiveness” for 2019 that involves upgrading two sectors that traditionally outperform in defensive markets — communications and consumer staples. Regardless of the more cautious approach, de Verteuil sees the S&P/TSX index gaining more than 1,300 points. The projected boost is attributed to a healthier energy market set to recover after individual companies were “taken to the woodshed” in 2018, as well as an improving gold market, he wrote.
Sunlife Global Investments — 15,000 points
Sadiq Adatia, Sunlife Global Investments chief investment officer, has some bad news for investors who are weary of volatile markets that are resulting in single-day 800-point swings: There’s more to come. Adatia expects the TSX to remain stagnant and wrap 2019 at 15,000 points with massive swings in volatility in between that may leave investors even more soured on the market. The TSX index will likely be affected by a decision on Brexit, which is expected to come early in 2019, as well as continued interest rate hikes by the Fed and the Bank of Canada. A trade deal with China could turn the tide, but Adatia is so pessimistic that one will arrive that he hasn’t baked it into his target.