After best rally since 2000, Canadian stocks face a wall of worry

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TSX expected to gain only 1.7% this year after the best start in almost two decades

The best start to the year since 2000 for Canada’s stock market brought a surge of superlatives — fresh highs and record profit forecasts.

Expectations that the Fed would cut rates had investors anticipating narrower interest margins from banks in the U.S. and Canada, and that sent their stocks lower, said Laura Lau, senior portfolio manager at Brompton Corp. Financials make up nearly 33 per cent of Canada’s benchmark. Oil stocks, which account for more than 10 per cent of the gauge, have also been the pariahs of the market.

Still, signs of fatigue were visible at the peak of benchmark’s ascent. At its Sept. 20 high, the S&P/TSX Composite flirted with the overbought level and quickly slipped back down, snapping a four-week winning streak. The sight of an inverting U.S. Treasury yield curve and President Donald Trump’s relentless tweets about trade relations with China has put a shine on defensive and value stocks. Utilities, real estate and financials were among the top gainers in the third quarter and in September:

 

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