TSX Trading at Record Levels, But Still Faces Hurdles

TSX Closes at All-Time High

During the fourth quarter of 2018, the TSX tumbled and ended the year 17% in the red. It’s been a different story in 2019. On Thursday, April 18, the TSX closed at a record 16,612.81, eclipsing the previous record close of 16,567.47 set in July 2018. Since the start of 2019, the TSX has gained roughly 17.5%. Despite the huge gains and record levels and strong investor confidence, the TSX could face headwinds in the second half of the year. The last quarter of 2018 saw the broader markets in North America experience a sell-off. In October, the markets sold-off and swooned in December. In fact, it was the worst December to hit Wall Street since the Great Depression. The TSX slumped into correction territory and lost 17% of its value. It wasn’t just the TSX that took a beating in the fourth quarter. The tech heavy Nasdaq finished the year down approximately 4.5% and the S&P 500 was down 7.0%. The TSX has been bullish in 2019 for a number of reasons. While earnings have been solid there are economic indicators that suggest the Canadian economy is cooling. This has led the Bank of Canada and other central banks to remain dovish on interest rates, meaning rate hikes will not be nearly as aggressive as initially thought. Other factors are helping boost the TSX into record territory. Oil price have surged in 2019; Western Texas Intermediate and Western Canadian Select are both up 43% year-to-date. And first quarter financial results are topping downward revised estimates. Meanwhile, economic data in the U.S. and China is better than expected. On the TSX, some of the biggest winners of 2019 have been energy, consumer discretionary, and healthcare stocks. Cannabis stocks also remain some of the most popular plays this year. Strong stock market gains are not good for all sectors. Safe haven investments are taking a hit, since everyone is so bullish on stocks. Gold prices are down less than 1% in 2019 and silver is down 3.5%. Some of that positive economic data coming out of the U.S., Canada’s biggest trading partner, might be smoke and mirrors. Positive date from the U.S. is being juiced in large part by the U.S. tax cuts that President Trump implemented in 2018, not actual economic growth. The wind could come out of the sales in the second half of 2019, which does not bode well for certain sectors on the TSX.

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