TSX to outperform S&P 500 in 2024 after 'significant catchup trade': BMO (2024)

May 30, 2024 at 6:05 p.m.·2 min read

Canada’s main stock index is limping behind the S&P 500’s blistering performance so far in 2024. BMO Capital Markets chief investment strategist Brian Belski says that could change in the second half of the year.

The S&P 500 (^GSPC) and the S&P/TSX Composite index (^GSPTSE) hit all-time highs in May as investors anticipated more dovish policy moves from central banks. Now, Belski says the TSX is “poised to reverse course and begin to overtake its neighbour to the south for the remainder of 2024.”

“We believe that a significant catchup trade will eventually transpire in Canada,” he wrote in a note to clients this week. “To be more specific, we believe the upside in Canadian equities will be driven by the strong relative value position, improving fundamental sentiment, returning foreign flows, and the overall broadening of equity performance from the U.S. mega-caps.”

BMO Capital Markets expects the TSX Composite to deliver a 9.5 per cent return into the end of the year, rising to 24,500 points. The bank sees the S&P 500 booking a 5.5 per cent return at 5,600 points.

For the TSX, Belski says it’s a good sign that two out of three of its largest sectors are outperforming the rest of the index, those being energy and materials.

It’s been a different story for financials. Dominated by Canada’s big banks, the sector is essentially flat this year amid concerns about mortgage renewals and rising loan losses. That’s not to mention the anti-money laundering issues at TD Bank (TD.TO)(TD) that could jeopardize its U.S. expansion plans, and Royal Bank’s (RY.TO)(RY) dismissal of its chief financial officer due to an undisclosed personal relationship with a bank employee.

“While financials are frankly languishing year to date, the sector is outperforming year-over-year,” Belski wrote. “This suggests to us that financials will likely reverse course much sooner than most investors believe and will begin outperforming as the year unfolds.”