The TSX continues to climb higher. How long can this last?

Businesses are reopening, the Delta variant is shrinking, and the markets are happy.

So happy, in fact, that Canada’s major stock index hit the 21,000 mark last week, a record that would have sounded absurd if someone had predicted it 18 months ago.

In the time since the world was engulfed in a global pandemic, sending global markets plummeting, the Toronto Stock Exchange’s S & P / TSX composite index has risen 79%, driven primarily by strong results in finance, energy and a variety of industry sectors. .

Canada’s largest banks have reported consistently strong earnings in 2021. In recent weeks, oil prices have hovered near multi-year highs. Several big-name companies will report their quarterly results this week, including Restaurant Brands International Inc., Teck Resources Ltd., and Suncor Energy Inc.

Meanwhile, the fear of a dramatic fourth wave driven by the Delta variant has not materialized as expected. Canadian retail sales rose 2.1 percent in August, according to recently released Statistics Canada data. And the federal government has taken steps to reopen the Canadian-United States border with the blessing of top public health officials.

“It’s totally consistent to see equity markets at record levels right now. With low interest rates and economic growth beginning to take hold, there are many reasons to remain optimistic, ”said Craig Jerusalim, senior portfolio manager at CIBC Asset Management.

Global markets faced a temporary dip in early fall, triggered by investor nervousness that some analysts dismissed as a mild case of the “September effect,” an annual event in which investors return from summer break and They change their portfolios, and mutual funds charge on their holdings. .

But a combination of supply chain concerns, labor shortages and inflationary pressure have also created enough uncertainty to make investors wonder how long the bull run can last.

For months, backlogs at North American ports have caused delays in shipments of products ranging from toilet paper to breakfast cereals, setting the stage for a chaotic Christmas shopping season.

Forecasters anticipate that consumer spending could slow in 2022 as the Bank of Canada raises the cost of borrowing. In response to rising inflation, which reached 4.4% in September, the highest year-on-year reading since February 2003, the Bank of Nova Scotia recently predicted the central bank would raise its benchmark interest rate four times in 2022 and another four times in 2023.

Some analysts say these pressures are temporary and will not hamper growth in sectors that dominate Canadian markets. But it can affect the hot streak of the market.

Macan Nia, Senior Investment Strategist at Manulife Investment Management, advises investors to moderate their expectations in 2022.

“We are coming out of a very strong two years for the market, but it is unlikely to continue. Investors can still expect positive performance profiles, but they will be more in line with average returns, ”said Nia.

Still, financial advisers favor investing in stocks over bonds, regardless of potential headwinds.

Portfolios with more bonds generally recover faster from recessions than those that lean towards stocks, but they have their own risks, especially during periods of rising inflation and rising interest rates. The TSX is heavily weighted with sectors that benefit from the rate hike, such as finance and energy, Jerusalim noted. And as the economy recovers, he says investors should hold onto stocks and anticipate growth.

“I’m not making a prediction about the way to get there, but I would say that in a year, stock prices will be higher than they are now,” he said.

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