Toronto's stock market will add to this year's gains over the coming months and notch a new record high in 2020, as potential Bank of Canada interest rate cuts bolster the outlook for real estate and metal mining companies, a Reuters poll found. The Toronto market composite index has rallied 13% since the beginning of the year, after falling 11.6% in 2018.
The median forecast from an Aug. 13-28 survey of 24 portfolio managers and strategists polled was for the market to rise a further 2% from Tuesday's close to 16,500 by the end of the year. The index is then expected to move above the April 2019 high of 16,673 to reach 17,050 by the middle of 2020. "We expect the Bank of Canada to join its global counterparts in lowering interest rates. This should bode well for the materials sector and stocks at large," said Arthur Salzer, chief executive officer of Northland Wealth Management.
The materials sector, which includes precious and base metals miners and fertilizer companies, has rallied about 25% this year as interest rate cuts by some major central banks, including the Federal Reserve, and geopolitical and economic uncertainty boosted the appeal of gold mining shares. Money markets expect the Bank of Canada, which has worried about the risks trade wars pose to the global economy, to leave its benchmark interest rate on hold at next week's policy announcement but to ease by the end of the year.
Canada's 10-year yield fell this month to its lowest level since October 2016 at 1.083%. A low interest rate environment over the coming one-to-two years is supportive of stocks and the housing market, said Bruce Latimer, a senior equity trader at Eight Capital. Canada's housing market has showed signs of increased activity in recent months after a slowdown since the introduction of tighter mortgage rules at the start of 2018. The Toronto market's real estate index has gained more than 18% this year.
Some other interest-rate sensitive components of the Toronto market, such as utilities, have also rallied in 2019. But the best performing sector has been technology, led by a surge of about 180% for commerce platform provider Shopify Inc. Meanwhile, the heavily-weighted energy sector has been a laggard.
The sector has fallen around 10% since the start of the year as oil prices fluctuated and after the province of Alberta, home to the third largest oil reserves in the world, imposed production quotas to relieve pipeline congestion and drain a glut of crude in storage. The energy group is unlikely to be a star "in the short-to-medium term" without the pipeline infrastructure needed to move Canadian oil to international markets, said Dominique Lapointe, an economist at Laurentian Bank Securities.
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