Is the TSX Going to Hit Record Levels in 2023?

There’s still a month left in the year but analysts are providing guidance for how they believe the Toronto Stock Exchange (TSX) and S&P 500 will do in 2023. The outlook for stocks listed on the TSX remains bullish while U.S. stocks may experience more volatility in 2023.

Nothing is set in stone of course, analysts were bullish on North American stocks heading into 2022 and we can now see that it’s been a brutal year for stocks, with the TSX down roughly five percent year-to-date and the S&P 500 in correction territory, down 16.3% from January highs.

How Will the TSX Do in 2023?

A lot of the pressure facing stocks can be attributed to higher interest rates. They might be good for curbing inflation but it’s bad for stock prices. That’s because it increases the costs of capital, which deters businesses from borrowing and investing to expand their businesses. Rising interest rates also cause earnings growth to deteriorate.

Fortunately, the stock market is forward-looking, and investors tend to price in economic rebounds and earnings growth before it actually happens. Inflation is showing signs of cooling which means both the Bank of Canada and U.S. Federal Reserve could slow or even pause their aggressive rate hikes. This should help earnings rebound.

And this is why so many analysts are bullish on the TSX in 2023. According to a recent poll, portfolio managers expect the TSX to hit fresh record levels in 2023, with stocks driven higher by strong prices for commodities and energy products.

This is expected to see the TSX top 22,000 by the end of 2023, which implies nine percent upside from current levels.

How Is the S&P 500 Expected to Do in 2023?

It could be a different story for U.S. stocks in 2023. This year is already shaping up to be the worst year for the S&P 500 in more than a decade, with the index poised to close out 2022 down more than 16%.

That would represent the first annual double-digit loss on the S&P 500 since the Great Recession in 2008, when the S&P 500 logged a 38.4% loss. But, for buy-and-hold investors, the S&P 500 has a storied history of providing strong gains (annual gains of nine percent since 1996), which means the current sell-off can also provide excellent buying opportunities.

And judging by the analyst downgrades, 2023 could provide investors with many great buying opportunities. Before the bear market is finished, the S&P 500 could fall as low as 2,500, which is 37% below current levels. Others are more optimistic and see the S&P 500 hitting a low of just 3,700 in 2023, which is only seven percent below current levels. 

On the other end of the scale is Wells Fargo, which sees the S&P 500 hitting a price target of 4,300 to 4,500 in the back half of 2023. That represents 10% upside from current levels.

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