A look at 2024
Since we made this crystal ball thing look pretty easy last year with our 2023 markets forecast, we’re at it again for 2024. And, it’s always good to begin a market predictions column with the caveat that this stuff is really hard to do.
It’s impossible to make accurate predictions consistently, especially about the markets, as there are just too many variables at play to always get it right. I mean, if you could tell me the outcomes of wars, upcoming elections, more pandemics and unexpected natural disasters of 2024, then I could give my some predictions with a little more confidence.
All that said, there are some big-picture trends and general rules of thumb that Canadian investors can apply to their thinking about the year ahead.
So, with those caveats out of the way, here’s a look at how we see the markets playing out this year.
Canada’s TSX 60 will gain 15%, outperforming the 8% gain for the S&P 500
It’s not that Canada’s economy is going to do better than America’s, or that our domestic companies have any hidden advantages. A prediction for TSX 60 outperformance is simply a bet that lower valuations may suffer less from the negative headlines than any higher-priced valuations of the S&P 500 composite index.
The 500 biggest companies in the U.S. had a fabulous 2023 and finished up 23% for the year. The markets always look ahead, true, and I think they foresaw sunny skies for late 2024 as early as spring 2023. Consequently, there would have to be additional excellent news coming to light for a repeat of such a strong year.
Canada, on the other hand, saw its TSX 60 index go up about 8%. There were a lot of negative headlines about lack of economic growth in Canada, and no equivalent of an “AI bubble” to drive a positive narrative for boring companies like Canadian railways or pipelines.
Right now, a TSX 60 exchange-traded fund (ETF), such as XIU, trades at about a price-to-earnings (P/E) ratio of 13x. An S&P 500 ETF, like SPY, clocks in at about 24x. I don’t think there’s any debate that the U.S. has more world-beating companies and a much more favourable tax environment than Canada. But are American companies that much better that they should be valued so much higher? Based on historical averages, we’re betting no.
Kyle Prevost
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