BMO'S top strategist sees TSX hitting record high in 2021

The TSX will post double-digit gains to hit a record 19,500 as the bull market roars back to life, predicts BMO chief investment strategist Brian Belski in his latest market outlook.

“As investors continue to deal with the unprecedented nature of 2020 and challenges that remain for 2021, Canada is likely to march toward a new all-time price high according to our models,” he wrote.

BMO'S optimism for Canada rides on its theme “As America goes, so goes Canada.”

Belski sees the S&P 500 gaining 15 per cent from its 2020 year-end target of 3,650 to reach 4,200 by the end of 2021.

The TSX closed at 16,909.81 on Thursday and the S&P 500 at 3,581.87.

The forecast does make some assumptions. Namely that one or more vaccines will become publicly available in the first half, there will be at least one more round of U.S. fiscal stimulus in the Us$1-trillion range and policy uncertainty, especially about trade, eases. It also sees the yield curve continuing to steepen as 10-year Treasury rate moves higher, but stays below 1.5 per cent.

2020 has been a year like no other for the stock market. But Belski maintains that the 20-year secular bull market is alive and well, a call BMO first made 10 years ago and has stuck by ever since, amid some skepticism.

“A once-in-a-century global pandemic, a month-long cyclical bear market, massive amounts of fiscal stimulus and Fed intervention, a compressed recession and a contentious U.S. presidential election tend to rattle the cages,” he wrote.

Waves of fear, emotion, rhetoric and overreaction spilled into the markets stoking the negativity that already existed towards the bull market and leading investors to make decisions that lacked discipline and often facts and analysis, he said.

BMO pegs March 23 as the “pessimistic crescendo” that served to reset the secular bull market amid the cyclical bear that was occurring in February and March.

In the new year, BMO expects corporate earnings growth to recover sharply from lockdown depths, especially in the second half of the year.

“We also believe current consensus earnings expectations are too conservative, setting up the potential for significant upward surprise in coming quarters,” it said.