One strategist says the S&P/TSX Composite Index (TSX) has performed strongly against the S&P 500 Index over the past month, nearly catching up with the S&P’s gains in recent days despite the sizeable bump to U.S. equities following Donald Trump’s election.
“The S&P had that ‘Trump bump’ up and then perhaps cooler heads prevailed and said: ‘Well, maybe we got a little bit ahead of ourselves,’ and things came back down,” Philip Petursson, chief investment strategist at IG Wealth Management, told BNN Bloomberg in a Tuesday interview.
“But the TSX along the way has just been steadily climbing, and this is, I think, a positive that can continue into 2025.”
Petursson noted that the TSX, which has hit all-time highs numerous times since July, has mainly been lifted by broad-based strength across industries, rather than singular outside factors that have driven the index higher in the past, such as the price of oil.
“And that’s a good thing, that’s a healthy market, that means there’s broader participation across the TSX. But that oil question I think can come in and benefit the TSX into 2025,” he argued.
“If you see any change in the oil price higher because of geopolitical risk emanating out of the Middle East or if we just start to see prices just gradually increase… that’s good for the energy sector and that’s good for the TSX overall.”
Petursson said that in addition to the energy sector, financials is another subset of the TSX he views positively going forward.
The TSX financials index, which includes Canada’s largest banks, has gained nearly 35 per cent over the past year, outpacing the TSX’s broader gains of just under 24 per cent.
“We see the banks as attractively valued right now, they’re offering a very attractive dividend, and they’re offering upside in terms of earnings growth,” Petursson said.
Economic headwinds
Despite his optimism about Canada’s benchmark stock index, Petursson said there are still downside risks to the Canadian economy in the near term, including the threat of tariffs being levied on Canadian imports into the U.S.
“That’s another economic headwind. I don’t think it’s as much of a stock market headwind, but I think it is a headwind for the economy,” he said.
Petursson added that against the backdrop of a weakening Canadian dollar, the Bank of Canada may soon have some difficult decisions to make as it contends with slowing economic growth and an unemployment rate he says is headed “in the wrong direction.”
“This is where the Bank of Canada is stuck between a rock and a hard place because if they continue to cut at a faster pace than the (U.S. Federal Reserve), then what you’re going to see is a continued weaker Canadian dollar,” he said.
“We do think that the path for the Canadian dollar is lower, and the Bank of Canada is going to have to tolerate that for a time because the lower interest rate environment is more necessary to the health of the Canadian economy than a strong loonie.”