Low gains and high volatility are waiting for the Toronto stock Exchange in 2018

Photo: Aaron Vincent Elkaim The canadian Press
The Toronto stock Exchange

The stabilization in oil prices helped the canadian securities out of their torpor in the second half of 2017, but investors who expect to see the Toronto stock Exchange catch up with her sisters, the world and their performance lightning should rather focus on more modest initial returns.


“Even if it has been stable in the first part of the year and has posted gains in the latter part of the year, the composite index S&P/TSX has posted variations incredibly thin in relation to historical standards,” observed Craig Fehr, a strategist of canadian markets for the firm of Edward Jones. “Then I think that the first thing to which we should expect to see the TSX is a greater variation of prices, is a lot more volatility, on a daily and weekly basis. “


“That said, I believe that there is still fuel in the tank of this bull market,” he added, referring to more than eight years of global gains since the crisis of 2009, in the wake of the last recession. “I believe that we will see further positive returns in 2018. I expect that they are relatively successful, then […] the canadian values should remain less efficient than those in international markets. “


After reaching the record high of 15 922,67 points on February 21, the TSX declined steadily until the low of 14 951,88 points, reached on 21 August, which represented a drop of 2.2 % for the year. Then, a recovery in crude oil prices — which has seen the price of a barrel of crude from its hollow by 42.53 US $ by 2017 at the summit of 60,42 US $ on the last day of the year — has fuelled the growth of the shares of the energy sector.

Record highs

In fact, the flagship index of the parquet floor toronto area has exceeded several times its closing record in the second half of 2017. On 27 and 28 December, the S&P/TSX closed at both record highs, consequential, or 16 203,13 points and 16 221,95 points, respectively. He then completed 2017 16 209,13 points, up 921,54 points, or approximately six percent, compared to the beginning of the year.


In comparison, the expanded index S&P 500 on Wall Street — the american equivalent of the TSX — has won 434,78 points, or approximately 19 %, in 2017. The average Dow Jones industrial has gained 4956,62 points, or about 25 %, and the composite index of the Nasdaq has taken 1520,27 points, or approximately 28 %.


One of the dominant themes for markets share in 2017 has been the tendency towards stability, rather than their cyclical nature, in an environment otherwise uncertain in the point of view of politics and geopolitics, said Candice Bangsund, vice-president and portfolio manager at Fiera Capital. It has prospered in the last year the us equity markets more defensive, in which the weighting is heavily oriented towards the technological growth. Meanwhile, the equity markets canadians, more faithful to the cycles, and whose main sectors are financials, energy and materials, have been greatly under-assessed.


Even if the oil exerts a key influence on the TSX, Todd Mattina, chief economist at Mackenzie Investments, says expect the price of oil remains around its current level, is between US $ 50 and US $ 60, throughout 2018. That said, this level will not help the benchmark index of the TSX significantly.


“The TSX has benefited in recent months from the strong rebound in oil prices. But there are a number of uncertainties, with the new year, which could also overshadow the outlook, ” he said. “One of them is the duration of the recovery in oil prices […] to the extent that the increase in oil prices since September has supported the gains of the TSX, the price of oil could be a risk factor for 2018 if they encounter a resistance due to an increase in u.s. production of shale gas. “


Despite all that, the oil is just one of the risks that could harm the facilities of the TSX in 2018, ” added Mr. Mattina. “The outlook for oil prices are not the source of our anticipation of a bear market for equities. We believe that the values of the canadian market are not as attractive as those of other major equity markets and our indicators on the morale of investors are turning to the downside. “


In addition to the uncertainty surrounding the ongoing negotiations on the free trade Agreement of north america, persistent concerns about the high level of debt of canadian households — and its impact on consumer spending in the coming years — should also have an impact on the TSX.


Statistics Canada reported in December that household debt in the credit market expressed as a percentage of their available income had increased to 171.1 % in the third quarter, compared to 170,1 % in the second. This means that for every dollar of income available to a household, he needs to pay 1,71 $ on the credit market.


Consumers have been the dominating engine of growth last year, thanks to gains in the job market, and Ms. Bangsund believes that trade and business development should take over in 2018, as fears of a slowdown in the United States and in the world failed to materialize in 2017. This may enable the segments cyclical market, which promote canadian values, to reconnect with solid performances.


“The TSX will be the main beneficiary of the continuation, in 2018, a scenario in which the growth is more vigorous and the price of natural resources rise, due to the cyclical nature of the canadian stock market “, she explained.


A report on the outlook of the global market to 2018 carried out by the firm Russell Investments Canada also supports the thesis of a rise in the price of canadian values because of the impulses of the end of the cycle. He warns, however, that volatility could be higher in 2018 than it was in 2017, the markets are starting to speculate on the arrival of a possible new recession. Taking into account the uncertainty surrounding the canadian values, the report of Russell concludes by showing a ” slightly positive vis-à-vis canadian securities, with a target of 16 900 points for the composite index S&P/TSX composite at the end of 2018 “.


If the yields of canadian values in 2018 should mimic those of the past 12 months, Mr. Fehr feels that the investors should remember that even if they compare poorly compared to the performance of other stock markets elsewhere in the world, they represent despite all of the gains relatively healthy.


“For the canadian market, in light of historical standards, it certainly is solid “, he felt. “This is a worse performance, in comparison, but it is a positive performance, then this is not so terrible. “