TSX rebound delayed until 2024, according to Bank of Montreal

Canada’s main stock index will hit a new all-time high in 2024, if investors can reject “paralyzing pessimism” not seen in decades.

That’s the latest forecast from BMO Capital Markets chief market strategist Brian Belski. Last year, he called for Canada’s S&P/TSX Composite Index (^GSPTSE) to outperform the S&P 500 (^GSPC) in 2023. That hasn't panned out in a year marked by rising borrowing costs, high inflation, and escalating violence in the Middle East.

Now, Belski says, “Canada is the contrarian call in 2024,” with re-accelerating growth in the second half of the year expected to boost earnings.

“While our initial target was not reached in 2023, we believe the rebound we expected for the Canadian stock market was only just delayed as investors digested the impact of higher rates,” he wrote in a note to clients.

“We believe the depth of underperformance [this year] underscores the paralyzing pessimism that traditionally persists in Canada relative to the increasingly clear fact that recent softness in domestic economic activity is more than priced in at current valuations,” Belski added.

BMO Capital Markets has set a 2024 year-end price target of 23,500 for the S&P/TSX Composite Index.

Belski is not alone in thinking Canadian stocks have been sapped by undue negativity. Mackenzie Investments portfolio manager William Aldridge says shares of many high-quality Canadian companies look attractive at current levels, including the Canadian banks, oil and gas producer Canadian Natural Resources (CNQ.TO)(CNQ), Alimentation-Couche Tard (ATD.TO), Loblaw (L.TO), and Canadian Tire (CTC-A.TO).

“We are seeing a lot of negativity priced in . . . but our well-managed domestic retailers are positioned to continue to cater to Canadians’ needs while benefiting shareholders,” he wrote in a commentary piece published on Monday. “We don’t have to pay up for this quality, which is unique to Canada at the moment.”

Philip Petursson, IG Wealth Management’s chief investment strategist, says recession fears have “probably taken up more airtime than deserved” in 2023.

“We believe investors may be putting too much focus on the negative,” he wrote in his firm’s 2024 market outlook. “Current data that lead economic and earnings cycles imply an inflection point that could indicate an improving environment.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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