While Canada’s economy battles with stubborn inflation and heightened interest rates, portfolio managers are placing their bets on how this environment might impact the S&P/TSX Composite Index in the second half of this year.

Experts who spoke with BNNBloomberg.ca at the end of 2022 had forecast the TSX would demonstrate a strong performance in 2023, driven by the strength within the banking and energy sectors – so far, this has not been the case.

The index is up against several headwinds, which include an overall slump in the outlook of the banking sector and weaker oil prices. Since the beginning of this year, the TSX has risen 1.90 per cent to 19,748.49 points as of May 30. 

As we approach the latter half of the year, BNNBloomberg.ca asked several experts what they expect to see from the TSX over the coming months.

Ryan Bushell, president and portfolio manager at Newhaven Asset Management Inc., said the growing risks of an economic downturn is the most likely event to pull the index lower in the second half of this year.

“I keep thinking that at some point the clock is going to strike midnight for TSX investors,” he told BNNBloomberg.ca in a phone interview on May 26.

Canada’s main index is heavily exposed to oil and bank stocks, both of which Bushell does not anticipate a lot of upside from in the remaining six months of 2023. 

“Investors are counting on an uptick in oil on the back of OPEC+ cuts. That’s really one of the only positives ahead for the TSX, but as you can see from the last cut -- the index didn’t really budge,” he said. 

As for the banking sector, Bushell forecasts increased loan loss provisions to continue to weigh on bank earnings.

“I can see the TSX ending the second half of this year in a double-digit negatives – this would be a lot more likely than double digit positives,” he said.

EDGING HIGHER?

Contrary to Bushell’s call, another portfolio manager is anticipating an upside scenario.

“I think you’ll see a flat market based on businesses not being able to grow because of higher interest rates, but towards the end of this year I see the TSX edging higher,” Allan Small, senior investment advisor at IA Private Wealth, told BNNBloomberg.ca in an interview on May 26.

Small argued that since the TSX ended last year in the red, the chance of it repeating this trend is low as historically it’s rare to see indices go down two years in a row.

The last time the TSX closed the year in negative territory consecutively since 1988 was in 2001 and 2002.

“The only thing that would hurt the TSX is if the BoC and the U.S. Federal Reserve continue on an aggressive interest rate path. I don’t think this will happen,” he said. 

The Bank of Canada’s next interest rate decision will be announced on Wednesday June 7 and the possibility of a rate hike isn’t being ruled out by economists – especially after Canada’s 3.1 per cent rise in GDP for the first quarter of the year and hotter than expected inflation in April.

LOOKING AT THE BIG PICTURE

Forecasting the TSX’s short-term performance is not common practice for Jason Del Vicario, portfolio manager at Hillside Wealth Management | iA Private Wealth, who told BNNBloomberg.ca in a phone interview on May 25 that he believes the possible risks or rewards ahead for this year are already priced in.  

“As it stands, I think the markets are fairly valued,” he said.

“The only thing I am certain of for the TSX right now is that it seems eerily quiet and volatility is likely to increase,” he said.

For investors looking to find safety in the unknown, Del Vicario advises to stay the course.

“The best move is to stay invested in the markets for the long-run,” he said.