TSX Poised for New Record in 2024 and Could Outperform S&P 500

The TSX did better than its American counterparts in 2022 but its been a different story in 2023. U.S. stocks did exceptionally well in the first half of 2023 with the S&P 500 closing out the second quarter up 15.5%. This is impressive, but not as good as the artificial intelligence (AI)-fuelled run on the NASDAQ that sent the index 30.5% higher. How did the TSX do? It eked out a 3.2% gain.

How Is the TSX Doing?

Despite the slow start analyst believe the TSX will perform better in the second half of the year and set a new record high in 2024. Better still, there are those who believe the TSX will outperform the S&P 500 over the next decade.

While the Canadian economy continues to battle persistently high inflation and interest rates at a 22-year high, economists now expect the economy to experience a soft landing with no recession this year. The Canadian economy is expected to stall in the back half of 2023 but it won’t actually contract. The technical definition of a recession is two consecutive quarters of a reduction in economic activity.

As a result, Bay Street analysts believe the Bank of Canada will hold its key overnight interest rate at 5.0% into 2024 with the first interest rates cuts coming as soon as April. The Bank of Canada will announce its next rate decision on September 6.

What does this mean for the TSX? The 2023 forecast for the TSX sees the index closing at 20,892. This represents a full-year gain of 6.9% and a 2.1% increase from the end of June. While there are bearish calls that see the S&P 500 ending the year out in the red, it’s quite rare for an index to go down two years in a row.

How Will the TSX Do in 2024?

The TSX is expected to continue to rise in 2024 with commodity prices juiced by China’s reopening, OPEC+ production cuts, and the Bank of Canada pausing and reducing interest rates. This could help the S&P 500 rise to 22,500, passing the previous record closing high of 22,087 in March 2022.

It gets a lot more difficult to predict what the S&P 500 will do further out, but there are some analysts who believe that because of higher inflation and commodity prices, the TSX could outperform the S&P 500 over the next decade.

There is some precedence. Since the 1950s, the TSX has experienced three upcycles: the 1950s, 1970s, and early 2000s. Each period was accompanied by either higher inflation or higher commodity prices.

Moreover, a prolonged period of higher interest rates is a bigger headwind for the S&P 500 than the TSX. And with inflation, high interest rates, and strong energy prices expected to remain for quite some time, the near and long-term outlook for the TSX remains bullish.

Learn-To-Trade.com, Canada’s Leader in Stock Market Trading Courses

The TSX is underperforming both the S&P 500 and Nasdaq, but because of strong energy prices and eventual end of the Bank of Canada’s interest rate cycle, Canada’s biggest exchange should perform better in 2024, 2025 and beyond. To find out which stocks will do better than others contact the trading professionals at Learn-To-Trade.com.

Related: Inflation Is in the Bank of Canada’s Target Range at 2.8%

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