The Toronto Stock Exchange (TSX) has lagged other major equity markets of late, but CIBC World Markets Inc. says that it sees a rebound in 2014.

In a new report, CIBC explains that the recent lagging performance is due to a number of factors, including a heavier weighting to global growth, commodity weakness, and “excessive concerns about the default risks from extended levels of household debt.”

Looking ahead, the firm concedes that, “In the near term, economic conditions aren’t likely to seem any more favourable to global cyclical equities,” however, it says that “a turn lies ahead for 2014.”

In the short run, CIBC sees the U.S. fiscal situation, the ongoing recession in Europe, and a slow recovery in China’s demand for imported commodities, signaling caution on both commodities and related equities.

“Wait until next year is the message for cyclical assets,” it says, noting that there will be much less fiscal dampening in the U.S. and Europe. And, by 2014, “China may have trimmed down resource stockpiles and turned into a more reliable source of import demand.”

“Other than gold, which could be chilled by the absence of an inflation threat and prospects for rate hikes in 2015, most commodity prices should be firming in 2014,” it says.

In the meantime, analysts have been trimming their 2013 earnings estimates by 4% in the last three months. “Along with utilities, sectors levered to economic growth, including materials, energy and industrials, have been downgraded,” it notes. And, it says that there is still room for earnings disappointments later in the year.

That said, CIBC also says that “Canadian equities do not look expensive, even in the context of a sluggish 2013 economy.” It notes that forward PE multiples are below historical norms, multiples to 10-year trailing earnings also look cheap, and dividend yields are holding up against 10-year bond yields.

“Add it all up, and while equity momentum may be a bit lacklustre in the next quarter or two, less cyclically sensitive dividend yielding stocks should still post decent returns in a low rate environment, with upside for more cyclical equities as we get closer to better global growth in 2014,” it concludes.