Salient to Investors:

Robert Gorman at TD Wealth said:

  • The 3-yr period of sharp underperformance for Canada is coming to a close
  • Dividend stocks will continue to rule but resource stocks will do comparatively better after showing signs of bottoming out.
  • The S&P/TSX Composite Index and the S&P 500 will both return 7 percent in 2014 including dividends, as economies in the US, Europe and China grow.
  • Expansion of US P/E multiples, now at 17 times, is unlikely to continue with the prospect of tapering.
  • Diversified miners producing coking coal and base metals are preferred over gold miners.
  • Energy producers with rising production and free cash flow are attractive, and preferred over oil stocks based on the expectation of a rising commodity price.
  • Stocks with a history of increasing dividends are preferred over stocks with high dividends that trade purely on yield, especially in an improving global economy that suggests a rise in bond yields, like utilities and to some degree any large REITs.
  • This will be the first year of synchronous global growth since the credit crisis and with significant favorable impacts throughout.
  • US and Canadian stock performance will converge.
  • The outlook for economic growth remains below-average.

The Canadian stock market is forecast to improve in 2014 to at least match the performance of the US for the first time since 2010, led by companies raising their dividends. The average economist expects 2014 will be the first year since 2011 when Canada, the US, China and Europe all post positive growth.

The average economist expects the global economy to grow 2.8 percent, the Canadian economy to grow at a 2.3 percent annualized rate, and the US economy to grow 2.6 percent in 2014.

Brian Belski at BMO Capital Markets said current US levels suggest it may be more difficult for the market to continue its impressive run without equally impressive earnings growth.

David Madani at Capital Economics said the better-than-forecast 2.7 percent growth in Canada’s Q3 showed continued weakness in exports and “one-off” rebounds in business spending following a flood in Alberta and the end of a labor strike in Quebec.

Ian Nakamoto at MacDougall MacDougall & MacTier, said Canada and other commodities-based markets will stay out of favor with investors until global growth accelerates past 4 percent as equity investors continue to believe commodities will not do much or go down, not up. Nakamoto said countries that consume commodities have been in favor and does not see that changing, and sees no broad-based uplift in Canada.

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