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- https://capitalmarkets.bmo.com/en/our-bankers/brian-belski/
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.”
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Source:
https://financialpost.com/executive/posthaste-after-blistering-rally-can-the-tsx-index-run-up-another-2000-points-next-year