Market Update: Canadian Equities

Market Update: Canadian Equities


The S&P/TSX Composite Index hit
a new high in the third quarter of 2019, supported by higher
energy prices. In particular, we saw
oil prices jump during the quarter on
tensions in the Gulf. Now, we think through the course
of the remainder of this year, oil prices will be supported by
tighter supply in the United States and tighter supply globally. Should the global economy
remain somewhat stable and we don’t see a continued
deterioration of fundamentals, then we think that oil
prices will support the TSX through the remainder
of the year, perhaps to new highs. We think that for the support
for the energy sector will come from clarity around
the energy policy for the government following the
election in October. The combination of higher oil prices
as well as better energy policy could be supportive for the TSX as we head into 2020. Valuation is also very supportive
for the Canadian stock market. On a relative basis, we think
that the Canadian stock market presents the same opportunity set as
what we would see in the United States, and perhaps valuation
might edge it out with stronger returns
as we head into 2020. We wouldn’t be overly aggressive
with respect to Canadian equities as headwinds could emerge with greater
tensions in the United States and China with respect to trade
that could spread and has spread globally, but certainly could spread further
into the Canadian economy, which could weigh on
the markets overall. Our base case for
the Canadian stock market as we head forward
into 2020, however, is through the next 12 months, we could see a
mid-single digit return, which would still support Canadian equity
position within the client portfolio, but wouldn’t suggest an
overweight to Canadian equities.

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