Canadian Stock Market Faces Downside Risks Despite Recent Surge

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TSX,Canadian Economy,Interest Rates

Despite a recent surge in the TSX, some strategists warn of potential downside risks due to warning signs in the Canadian economy. Rising unemployment and flagging private sector output have led economists to predict further interest rate cuts by the Bank of Canada.

Sadiq Adatia, CIO of BMO Global Asset Management, joins BNN Bloomberg and talks about how the TSX outlook enters its trading day as it enters near record high.

“We’ve crossed the Rubicon and we’re in for a hard landing,” James Thorne, chief market strategist at Wellington Altus, said in an interview. The wealth management firm has an underweight in Canada and is encouraging investors in domestic equities to be selective, focusing on defensive names and rate-sensitive sectors such as real estate investment trusts. Indeed, real estate stocks are up 20% since the first Bank of Canada rate cut, and financials have been on a tear too, gaining 12%.

National Bank of Canada strategists led by Chief Economist Stefane Marion called rising unemployment levels “a red flag for equities,” saying that analysts are overly optimistic about earnings growth for Canadian companies. The bank recommends adding bonds and trimming equity exposure as it reinforces its defensive stance.

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