TSX Bullish, On It’s Way to Erasing Q4 2018 Meltdown

After an abysmal 2018, the TSX is one of the top performing stock markets in 2019; at least so far. Canadian stocks have been bullish thanks to some big names reporting strong fourth quarter results, strengthening crude oil prices, buoyant natural gas, and hopes that President Trump will delay increasing tariffs on Chinese imports. While the TSX is on a solid trajectory, there are some near term concerns which could result in the markets trading sideways or stalling out.

TSX Up 13.5% So Far in 2019—But Momentum Could Stall

In 2018, the TSX suffered its worst year in a decade. The TSX fell 12% in 2018, closing out the year at 14,322. Most of that drop came about in the fourth quarter of the year. It was a perfect storm of economic uncertainty. Global stocks fell in October and tumbled again in December as fears about a global trade war between the U.S. and China, the world’s two largest economies, ramped up. Canadian stocks also faced headwinds from rising interest rates, a housing slowdown, cuts in crude oil production, and weak consumer spending. It wasn’t just the TSX that experienced a meltdown, global stocks did too. The S&P 500 ended 2018 6.5% in the red and the Nasdaq was down 4.3%. It was the worst December to hit Wall Street since the Great Depression. Since the start of 2019 though, the TSX has reversed its downward spiral. The TSX is up 13.5% so far this year and is just three percent from the record high it set last July. Why the positive momentum? There is optimism about crude oil prices and higher natural gas contracts. Strong corporate earnings from bigger names like Manulife Financial Corp. (TSX:MFC) and TransCanada Corp. (NYSE:TRP) have also helped fuel investor optimism. Thanks to better than expected quarterly results both companies have increased their dividends and share buybacks. The momentum on Bay Street is expected to continue should the trade dispute between the U.S. and China be diverted. President Trump said he may extend the March 1 deadline for increasing tariffs on $200 billion-worth of Chinese imports from 10% to an eyewatering 25%. That said, Trump has not set a new date for when he could raise tariffs if things don’t go as expected. There are fears that an ongoing trade war will disrupt global trade and weaken already sluggish economic growth. Meanwhile, the TSX could face pressure in the coming weeks. Fourth quarter growth is expected to show the country’s gross domestic product (GDP) expanded at just 0.8% and 1.2%. Far worse than the 2.0% GDP growth reported in the third quarter of 2018. First quarter 2019 GDP isn’t expected to be exactly be stellar either. That kind of chill could see the TSX’s momentum stall.

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