Strategists’ outlook on TSX in 2017 mildly optimistic

Slow growth to be capped with an all-time high next year, barring certain risks

A poll by Reuters has found that financial strategists anticipate slower growth concluding in an all-time high for Canada’s main stock index in 2017, assuming US President-elect Donald Trump follows through on tax and spending plans to boost the economy, according to a Globe and Mail report.

However, respondents felt that the outlook has been slightly clouded by Trump’s protectionist talk on trade policy, a spike in global bond yields, and an unsteady Canadian domestic economy.

Expecting a Canadian stock pullback in the second half of next year, Integris Pension Management Corp Chief Strategist Gavin Graham said that Trump’s election is “likely to lead to a selloff as potential negative effects of actual policies become apparent in an overvalued market.”

While some Canadian firms stand to gain from Trump’s promises to cut taxes and spend on infrastructure, his goal to renegotiate international trade agreements will present problems for Canada, which currently does extensive trade with the US.

The Toronto S&P/TSX composite index has staged an impressive rally of 30% after dropping to a three-year low in January. A landmark decision by OPEC to dramatically limit production has also improved oil prices, a major Canadian export. “I expect moderate gains in the domestic market, driven primarily by a rebound in corporate profits as energy-sector profits balance out from recent sharp declines,” said Edward Jones Canadian market strategist Craig Fehr.

The median forecast for the Reuters poll of 20 strategists was an end-2017 posting of 16,050 for the TSX. By mid-2017, the poll found, the TSX was expected to reach 15,704.

“We think that stocks are overdue for a correction, so the first part of the year is likely to be weak,” said Portfolio Management Corp Managing Director Norman Levine. “But then expect a stronger US economy to drag Canada along.”

Sprung Investment Management President Michael Sprung expressed concerns over risks of global bond yields rising further, which would have several negative effects such as reduced consumer spending and weaker corporate earnings. Other Reuters polls have revealed fears of a weaker Canadian dollar throughout 2017 and more increases in global sovereign yields, which are expected to be slower than the one precipitated by the recent market rout.

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