Canadian Thanksgiving may have been a day to celebrate with family and friends, but that cheer didn’t get carried over into a day of strong trading on Tuesday, October 11. Instead, the TSX continued to sell off; over just four trading days the TSX lost more than 1,100 points and is trading at its lowest levels since March 2021.

The TSX has essentially erased all of the gains it’s made since before the March 2020 COVID-19-fuelled sell-off. And more losses are expected with some analysts predicting the market may not bottom until 2024. The good news? The TSX could outperform the S&P 500 over the next decade.

When Will the Bear Market Bottom Out?

Why will investors have to wait until 2024 for the bear market to bottom? Historically the stock market has never bottomed during a period in which the central banks are still raising their rates into an inverted yield curve.

Moreover, the stock market typically bottoms 16 months after the U.S. Federal Reserve halts its rate hikes. And right now, central banks around the world, including the Bank of Canada, show little sign of slowing down their interest rate hikes.

So far, the Bank of Canada has raised its key lending rate five times since the start of 2022, from 0.25% to 3.25%. It will announce its next rate decision on October 26. The U.S. Federal Reserve has raised its interest rates five times this year and is currently in a range of 3.0% to 3.25%. By the end of 2022, analysts expect the rate to reach 4.5% to 4.75%.

While this points to more pain on Bay Street and Wall Street, it’s important for investors to understand that the biggest rallies happen during bear markets. And some of the biggest gains are expected to occur on the TSX with some suggesting the index could outperform the S&P 500 for the next decade.

The rationale? Deflation, low rates, and globalization will pivot to inflation, de-globalization, and higher commodity prices. An expected upcycle in inflation and commodities could juice the TSX over the next decade.

Because the TSX is cash-rich and dividend heavy it is more resilient to stock market volatility. When adjusted for market capitalization, the TSX yields twice as much as the S&P 500. Canadian stocks also have more cash than U.S. stocks.

With those tailwinds, the TSX could return 6.5% annually, plus an additional 3.4% in dividends. The S&P 500 has implied annual total returns of 8.0%.

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