Despite the recent drop in income trust values. UBS Securities Canada Inc. says that it is leaving its S&P/TSX composite index target unchanged.

“Our comments in the wake of the market’s reaction to the taxation of income trusts are twofold. First, the roughly 15% decline in the non-REIT portion of the income trust index is in line with what fundamentals would suggest; and, second, we are leaving our TSX target unchanged at 13,250 as this impact only offsets the increase in our estimate of fair value since we raised it two months ago,” it says in a new report.

“We want to emphasize our view that the backdrop for equities remains positive. While there are many indicators that come and go, one that has continued to work is the Presidential cycle. Quite simply, neither the TSX nor the S&P 500 has declined in the third year of a Presidential cycle in the last half century – in this case, 2007,” UBS points out. “Indeed, year three has consistently been the best of the four.”

“Moreover, we reiterate that markets perform well despite the most commonly cited investor worries. Specifically, equities post solid bounces in the year after midcycle economic slowdowns, such as 1995 and 1984, after the Fed stops hiking, after earnings growth drops below 15%, and even after unusually strong bounces during the usually difficult Aug – Oct period,” it adds.