Briefing highlights
- TSX on roll: What you should know
- Markets at a glance
- Manufacturing sales perk up
- Ontario won’t spend to lure Amazon
- Protectionism could hurt housing: CMHC
Whither Toronto stocks
If Prime Minister Justin Trudeau were to put on his Trump cap today, he'd be tweeting about the born-again Toronto stock market.
And taking credit for it, as the U.S. President did last week for the runup in American stock prices.
"The TSX has sprung back to life, rallying almost 6 per cent since mid-August and outperforming most of its major-market peers," Bank of Montreal senior economist Robert Kavcic said of where the S&P/TSX composite ended last week..
"There hasn't been any one factor that accounts for the strength – oil prices have helped a bit and banks have probably benefited from the rate environment, but every sector on the TSX is up over that period," he added.
"And, with stocks usually looking six to eight months ahead, it's not an economic story either – that was more likely behind the 2016 rally, and peak growth is behind us now. Much of it might be the market realizing that Canadian equities just got too cheap. As we've noted recently, TSX valuations relative to the S&P 500, based on forward earnings yields, were the most attractive in almost a decade this summer."
(With apologies to Mr. Kavcic, we'd get something like this if a Trump-like Mr. Trudeau took to Twitter: There has only been one factor that accounts for the strength – me.)
The TSX has by no means been a star this year. That's a recent phenomenon.
As of Friday's close, it was up just 3.4 per cent, a laggard among major markets.
So where to from here?
"Canadian growth is hot and analysts are pricing strong earnings growth for the TSX over the coming three years," said Nick Exarhos of CIBC World Markets.
"The composite is expected to outpace European stocks and names on the S&P through 2020, a catalyst that should help reverse some of the underperformance we've experienced on the composite so far this year," he added.
"Indeed, combined with the lowest [price/earnings] ratio of the three areas that we've looked at, Canadian equities are presenting good relative value."
Brian Belski, BMO's chief investment strategist, whose model projects the TSX at 16,000 this year, said there are three things investors should know amid its rebirth.
These are points from BMO's models that "we believe most Canadian investors have missed within the broader context of Canadian stock market performance."
1: "With the resurgence of Canadian equities in September, individual stock performance has become increasingly less correlated. In fact, intrastock correlations hit new cycle lows in September and are now at the lowest levels since 2005. As such, we believe Canadian investors should become more active in stock selection in Canada."
2: "Much like the positive economic surprise we have seen over the last few quarters, the broadly positive earnings surprises and consistent uptrend in revisions confirm to us that the pessimism surrounding Canada is overdone."
3: "We believe the sharp drop in our energy sector revisions composite is welcome, as analysts appear to be adjusting their outlook to a more reasonable lower-for-longer oil price environment. This is likely a necessary precursor for any future positive revisions cycle, and a strong contrarian indicator for near-term outperformance."
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- Follow Inside the Market
- Tim Shufelt: Canadian stocks catching up to rising profits
- David Berman: Canadian bank stocks no longer cheap, but still worth owning
- Rob Carrick: How dividend growth can push your stocks higher in price
- John Heinzl: My new dividend portfolio is off to a flying start
‘It’s quiet, too quiet’ is the only quote that comes to mind
Kit Juckes, Société Générale on the markets
Markets at a glance
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Manufacturers gain
Canada's manufacturers scored a surprisingly strong showing in August, ending what had been a two-month slump.
Sales jumped 1.6 per cent, a far better result than markets had been expecting.
Sales were up, though, in just eight of 21 industries tracked.
And when you adjust for price changes, volumes were up 1.2 per cent.
Much of the gain came from the auto industry, both vehicles and parts. Also buoying the result were stronger oil and coal prices.
"Auto makers got their assembly lines rolling again in August, leading to an impressive recovery following a string of soft data," said Toronto-Dominion Bank senior economist Brian DePratto.
"Beyond the one-time boost from autos, it was also encouraging to see an improvement in order books. All told, despite the noise in the data, this solid report implies third-quarter growth tracking around 2.5 per cent, which would mark a fifth straight quarter of healthy growth."
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No money to lure Amazon
The Ontario government has ruled out giving Amazon Inc. any money or tax breaks as part of its plan to convince the online giant to establish a corporate headquarters in the province, The Globe and Mail's Justin Giovannetti reports.
A plan to increase Ontario's number of science and technology graduates is at the centre of the province's plan, Ed Clark, the former TD Bank chief executive, said today. Mr. Clark was chosen by Premier Kathleen Wynne to head the province's bid team.
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Protectionism could hurt housing: CMHC
A wave of antiglobalization that leads to widespread protectionism and use of tariffs could cause Canadians house prices to fall by over 31 per cent in the next five years, according to the results of stress tests by Canada's national housing agency.
Canada Mortgage and Housing Corp., which insures mortgages against defaults, released the results of internal modelling that tests severe economic scenarios, The Globe and Mail's Janet McFarland reports.
The scenarios - they include a wave of antiglobalization, a severe earthquake, steep oil price declines and a massive housing correction - are all chosen as worst-case events and are not forecast to actually occur, CMHC said.
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