Market Outlook - May 2024

The increased year end price target for both the S&P 500 and the TSX is evidence of our outlook for the remainder of the year. The revision comes on the heels of stronger than expected momentum in the market, and a realization that investor expectations and Fed policy guidance have become more aligned compared to the disconnect that was present at the beginning of the year. From another perspective, when considering historical performance patterns, the strong returns since the beginning of the year suggest that further gains are probable. Our Chief Equity Strategist, Brian Belski said in a recent interview, “while we still expect there to be a more significant pullback at some point, it is likely to occur at a much higher level than we previously anticipated” meaning the eventual rebound will also begin at a higher base. He also went on to add that he believes the “market is behaving in a similar fashion to 2021 and 2023 – years where we did not give enough credit to the strength of market momentum.”

We concur with Brian’s assessment of the market and with the additional allocation to Canadian equities in our portfolio we believe the TSX has the potential to begin outperforming in the second half. An argument can be made that there is a significant catch-up trade in Canadian equities. This will be driven by relative value, improved fundamental sentiment, and the continued broadening of the market performance as foreign flows reallocate by trimming overweight positions in U.S. mega caps to oversold and undervalued areas of the market. Meanwhile, both energy and materials have outperformed the TSX so far this year, and should the banks begin to rebound even just a little, it will be difficult for the TSX to underperform with the big-three sectors working at the same time.

If you would like to receive a full copy of our May 2024 market commentary, please email us at msbwealth@nbpcd.com