Economists at Desjardins Group have boosted their forecast for the Canadian stock market, citing the market’s strength so far this year.
While the start to the year was painful for stock markets, the firm notes that investors managed to get beyond the initial turbulence in emerging markets, and have since performed well. It reports that, since the beginning of February, the S&P 500 is up by more than 7%, and the S&P/TSX index has gained 6.1%.
The markets have also proven reasonably resilient amid mounting geopolitical tensions in the Ukraine, and weak U.S. economic statistics that were hampered by harsh winter weather. The Canadian stock market has made gains, too, in the face of concerns about growth in emerging markets, which could imperil stocks in the materials sector.
“Despite a difficult global environment for mining companies, the sector has managed to hold onto the gains recorded since the end of 2013,” it says. Energy stocks have been flat; and financials have held up, although it says that tougher days may be ahead for banks due to “less favourable conditions for the mortgage market than have been seen in recent years”.
But, given the resilience of the materials sector and the index’s strong performance to date, Desjardins is now forecasting a 13.0% return for Canadian stocks this year, up from its previous forecast of 11.0%. Its target return for the S&P 500 remains at 8%, which “implies that the Canadian stock market should outperform the U.S. stock market to a greater extent than previously assumed.”
The firm notes that it’s still calling for a negative return of 1.0% for bonds.