David Burrows, president and chief investment strategist at Barometer Capital Management, discusses his views on the markets in an interview with BNN Bloomberg, considering the current economic situation.
Canadian stocks are expected to continue their impressive run in the coming months, supported by strong cash reserves held by retail investors and increased interest from foreign investors, according to BMO Capital Markets.
The S&P/TSX Composite index recently hit a record high of 23,116.39, driven by rising gold prices. This strong performance is seen as just the beginning, with further gains on the horizon. BMO’s chief investment strategist, Brian Belski, believes that Canadian stocks have ample room to grow and achieve even higher price levels.
Retail investors, in particular, are in a strong financial position, with significant cash reserves that are ready to be invested. While institutional investors have already deployed some of their excess capital earlier this year, Canadian households still hold a decade-high level of cash, giving them the ability to make strategic investments. Belski notes that the TSX typically performs well when cash reserves begin to decline from peak levels, suggesting that as money flows into the market, stocks could continue to rise.
Foreign investors, who have been net sellers of Canadian stocks so far this year, have also shown signs of slowing their selling pace. Belski expects that these investors will eventually reverse their course and start buying more Canadian stocks, adding further momentum to the market.
Research from Bank of America supports this optimistic outlook, indicating that Canadian stocks are poised for more gains. Their Canada cycle indicator, which uses historical data to predict Canadian stock performance relative to the U.S. S&P 500 Index, has turned positive for the first time since March 2023. According to BofA analyst Ohsung Kwon, the TSX has outperformed the S&P 500 60% of the time when this indicator has been in positive territory. Kwon suggests that Canada could offer a more attractive investment opportunity in the current uncertain global economic environment.
BMO’s Belski believes that the combination of retail investors moving cash into the market and an increase in foreign investor interest could lead to above-average performance for Canadian stocks in the months ahead. The strong financial position of Canadian households, coupled with a potential reversal in foreign investment trends, creates a positive outlook for the Canadian stock market.
Overall, Canadian stocks are well-positioned for continued growth, with a favourable mix of factors driving investor interest and market performance. As cash reserves are invested and foreign investment increases, the TSX is expected to achieve further gains and maintain its record-setting pace.
