TSX expected to shatter records in 2020 after gaining 2.9 per cent to start year

TORONTO — Canada's main stock index is expected to shatter records in 2020 after starting the year up nearly three per cent to date, says an investment expert.

The S&P/TSX composite index should gain at least 10 per cent for the year, pushing it to about 19,000 points while outpacing U.S. markets, says Macan Nia, senior investment strategist at Manulife Investment Management.

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"That is our base case and there's potential risk to the upside," he said in an interview after the market capped a strong week by hitting another record high.

Nia said markets are being propelled by stabilization in the global economy and low interest rates which central banks are unlikely to increase in the face of little inflation.

"There's nothing in near sight that would suggest that the party can't continue."

A catalyst for a correction or pullback could be disappointing earnings results, he said, noting that when valuations get high it only takes something minor to get a pullback.

Another could be the result of the Democratic primaries if Bernie Sanders or Elizabeth Warren win the party's nomination to take on U.S. President Donald Trump.

Either one would provide a "headwind for capital markets" Nia said, noting their calls to break up big tech companies that have driven stock market gains.

Former New York City mayor and businessman Michael Bloomberg and former U.S. vice-president Joe Biden are viewed as the most pro-business among leading candidates.

For now, there's a lot of optimism as the Phase 1 trade agreement between China and the U.S. has tamed investor anxiety.

The S&P/TSX composite index closed up 74.25 points at 17,559.02 after trading at a record high of 17,572.15.

In New York, the Dow Jones industrial average was 50.46 points at 29,348.10. The S&P 500 index was up 12.81 points at 3,329.62, while the Nasdaq composite was up 31.81 points at 9,388.94.

The TSX gained 1.9 per cent last week and 2.9 per cent year-to-date after gaining more than 19 per cent in 2019.

"A good end to a great week to a great start to the year followed by a great 2019," Nia said.

Markets were propelled by strong U.S. housing starts that were at the highest level since 2006 and factory output improving 0.2 per cent in December.

Although Chinese economic growth slowed to a 29-year low of 6.1 per cent last year amid a trade war with the U.S., the weakness seems to be normalizing, he said.

"That's providing optimism for markets that we're towards the end of this weakening and that we might be seeing an inflection point."

The Canadian dollar traded for 76.56 cents US compared with an average of 76.66 cents US on Thursday.

The key energy sector was the only one of 11 major sectors on the TSX to fall on Friday, led by a 4.1 per cent decrease in shares of Encana Corp. as natural gas plunged to a near four-year low.

The March crude contract was up five cents at US$58.58 per barrel and the February natural gas contract was down 7.4 cents at US$2.00 per mmBTU.

Materials was part of a broad-based rally, ending the day higher led by First Quantum Minerals Ltd. and Teck Resources Ltd. They climbed on higher gold prices as oil rigs increased in the U.S. for the first time in a couple of weeks and the possibility that 20-year U.S. bonds could weaken the U.S. dollar.

The February gold contract was up US$9.80 at US$1,560.30 an ounce and the March copper contract was down 0.15 of a cent at US$2.85 a pound.

"It just shows the general positive animal spirits for the markets at this point that's just a continuation of what we saw last year where you're seeing all sectors rise together."

This report by The Canadian Press was first published Jan. 17, 2020.

Companies in this story: (TSX:FM, TSX:TECK.B, TSX:ECA, TSX:GSPTSE, TSX:CADUSD=X)

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