Toronto Stock Market Expectations for 2022

Brian Belski, the star Analyst at BMO Capital markets, thinks that the Canadian stock market has 23.6% gains year to date, but this rally will be slower next year. By Close Friday, the S&P/TSX Composite Index rose to a record 21,555 points, and it was remarkably close to the 22,000-point target set by Belski by the year-end.

Now, he is forecasting that the TSX benchmark index will reach 24,000 points by the end of next year. In a note a few days back, he stated, “Although this sharp recovery (in 2021) is unlikely to be matched in 2022, we believe Canadian equities can still approach double-digit growth in 2022. In fact, we forecast that the S&P/TSX will rise 9 percent (from current levels) and reach 24,000 by 2022 year-end, which marks another new all-time high.”.

Image Source-

The 2022 outlook of The Canadian Bank assumes that there will be a return to normalcy, and investors might see a transition to an earnings-driven environment that will lead to focus on stock selection and greater bouts of volatility.

Belski said, “Our expectation assumes that companies will build on the earnings recovery displayed in 2021, as supply chain disruptions ease, inflationary pressures subside, and economic trends adjust to the post-pandemic world.”

He has also upgraded the real state index of Canada from underweight to medium weight and said, “Stronger-than-expected earnings environment; also, our work has shown real estate to be less interest-sensitive than other high yielding sectors, particularly since 2002.”

Talking about the technology sector, he stated, “Our work shows that the broader market and the technology sector can register solid gains during rising interest rate cycles (Yes – Tech). In fact, annualized returns for Tech have actually eclipsed those of the market during five of the prior seven periods of increasing rates and is currently outpacing the S&P 500 in the present cycle, which started at the end of July ’20.”

Belski is very bullish on consumer discretionary stocks. He said, “The S&P 500 Consumer Discretionary Equal Weight index is currently outpacing its market-cap-weighted counterpart by more than six percentage points YTD, indicating that many stocks are performing well. In fact, almost 60% of stocks in the sector are posting above-market price returns in 2021.”

Belski is also overweight on materials stocks which is mainly due to the US$1 trillion infrastructure bill that the U.S. government approved. But he warned that a market correction might also happen. It usually happens every 15.5 months, but a market correction hasn’t happened for 20 months. He said, “Yes, a 10% peak-to-trough price decline will eventually occur, and probably when we least expect it. Therefore, investors should stick to their investment discipline as history shows that U.S. stocks typically rebound quite well following corrections, especially in the subsequent three months.”

Concluding the discussion, Belski said, “The inevitable end of the positive surprise cycle and the slowing of earnings momentum does not mean an end to the bull market. Instead, this transition will likely bring less positive performance – but yes, still positive performance – and an increasing level of importance on active portfolio management and stock picking.”

Need more? Keep up with Toronto Stock Exchange here.


Previous Post Next Post