The TSX, Canada’s main stock index, which tracks about 250 Canadian companies, has been ripping higher in 2021, up roughly 17% year-to-date. While the strong gains still lag the S&P 500, which is up 37% in 2021, the TSX is poised to rally considerably higher over the coming months as major market headwinds have mostly faded away.
The TSX has been one of the better performing stock indices in 2021. Between the start of the year and end of July, the TSX advanced 15.3%. Since then, it’s climbed less than one percent. Why has the TSX been trading sideways? There have been a number of economic catalysts that were holding the TSX and most global markets back.
How Will the TSX Do for the Remainder of 2021?
The stock market hates uncertainty, and the outcome of the Canadian election, whether the U.S. Federal Reserve is going to begin tapering its massive stimulus, fears that China’s Evergrande would default on its $305 billion in liabilities, and if COVID-19 could derail the economic recovery have been underpinning growth over the last couple of months.
Most of those concerns have been answered though. The Liberal party “won” its second consecutive minority government with Prime Minister Justin Trudeau assuring investors that the outlook for the Canadian economy would continue to improve.
The Federal Reserve announced it was holding its key interest rate steady but said it would most likely begin reducing its generous monthly bond purchases as soon as November, followed by an increase in interest rates. Investors may not like to see interest rates rise but it could certainly combat soaring inflation, although the Fed said it expects inflation to run above its two percent target over the next three years. But only just, at 2.2% in 2022 and 2023 and 2.1% in 2024.
Concerns about a potential default by Chinese real estate behemoth Evergrande have eased, with the Chinese Central Bank injecting nearly $19 billion into the banking system in an effort to stave off a Lehman Brothers type of meltdown.
And really, the last thing the Chinese government is going to want to do is allow one of the biggest companies in the country collapse. That would send ripple effects across the global financial markets and be a black eye on the Chinese government.
Lastly, while there are short- and long-term risks associated with COVID-19 and Delta variant, Canada’s gross domestic product forecast is still five percent. It would be higher but global supply constraints are impeding the recovery.
Investors now know who won the Canadian election and what the Federal Reserve expects to do. Moreover, China Evergrande has reached a debt deal. And Canada’s economic outlook remains solid, not perfect, but better than many European countries and we’re certainly not dealing with the political deadlock that the U.S. is and choppy growth.
The future remains as uncertain as ever, but with major catalysts out of the way, the TSX is still expected to close out 2021 with another positive performance.
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The TSX has been one of the better performing indexes in 2021. While its growth has been held back over the last couple of months by economic headwinds, those catalysts are now in the rear-view mirror, and the TSX is expected to end the year on a positive note. This also bodes well for 2022 as the economic recovery takes hold. That doesn’t mean gains will be broad based, some sectors and stocks will do better than others. The trading experts at Learn-To-Trade.com can help you determine which ones will flourish and which ones to avoid.
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