Making sense of the markets this week: January 7, 2024


A take a look at 2024

Since we made this crystal ball factor look fairly straightforward final yr with our 2023 markets forecast, we’re at it once more for 2024. And, it’s all the time good to start a market predictions column with the caveat that these items is absolutely laborious to do.

It’s unattainable to make correct predictions constantly, particularly in regards to the markets, as there are simply too many variables at play to all the time get it proper. I imply, in the event you may inform me the outcomes of wars, upcoming elections, extra pandemics and surprising pure disasters of 2024, then I may give my some predictions with just a little extra confidence. 

All that stated, there are some big-picture developments and normal guidelines of thumb that Canadian traders can apply to their fascinated about the yr forward. 

So, with these caveats out of the best way, right here’s a take a look at how we see the markets enjoying out this yr.

Canada’s TSX 60 will acquire 15%, outperforming the 8% acquire for the S&P 500

It’s not that Canada’s economic system goes to do higher than America’s, or that our home firms have any hidden benefits. A prediction for TSX 60 outperformance is solely a guess that decrease valuations could undergo much less from the unfavourable headlines than any higher-priced valuations of the S&P 500 composite index.

The five hundred largest firms within the U.S. had a wonderful 2023 and completed up 23% for the yr. The markets all the time look forward, true, and I believe they foresaw sunny skies for late 2024 as early as spring 2023. Consequently, there must be extra good news coming to gentle for a repeat of such a robust yr.

Canada, however, noticed its TSX 60 index go up about 8%. There have been plenty of unfavourable headlines about lack of financial development in Canada, and no equal of an “AI bubble” to drive a optimistic narrative for boring firms like Canadian railways or pipelines.

Proper now, a TSX 60 exchange-traded fund (ETF), equivalent to XIU, trades at a couple of price-to-earnings (P/E) ratio of 13x. An S&P 500 ETF, like SPY, clocks in at about 24x. I don’t assume there’s any debate that the U.S. has extra world-beating firms and a way more beneficial tax atmosphere than Canada. However are American firms that a lot better that they need to be valued a lot increased? Based mostly on historic averages, we’re betting no.

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