According to BMO Capital Markets, the Canadian stock market will continue to break records in the coming months due to the ready-to-use cash reserves of retail investors and the inflow of foreign investors.
According to the intelligence financial app, BMO Capital Markets stated that the Canadian stock market will continue to break records in the coming months due to the ready-to-use cash reserves of retail investors and the inflow of foreign investors.
After the S&P/TSX Composite Index hit a new high on Monday, Brian Belski, the chief investment strategist of the bank, wrote in a report on Tuesday, "The Canadian stock market still has a lot of room for further growth." With the surge in gold prices, the benchmark stock index closed at 23,121.73 points on Wednesday.
Belski stated that retail investors have solid cash positions that can be released at any time. He pointed out that although institutional investors have deployed some excess capital in the first half of 2024, Canadian households continue to hold the highest level of cash in a decade in the first quarter.
"Our research shows that when cash positions decline from their peak levels, TSX often bottoms out and exhibits strong returns. The peak of money market assets often coincides with the low point of TSX performance," said Belski.
Foreign investors have been net sellers in the Canadian stock market so far this year. However, in the past 12 months, the pace of selling has slowed down, and Belski's team expects the fund flows to eventually reverse.
Research from Bank of America also suggests that there will be more upside potential in the country's stock market. Their Canadian cycle indicator, which is based on historical data and predicts Canadian stock market outperformance compared to the S&P 500 index, has turned positive for the first time since March 2023.
Ohsung Kwon, an analyst at Bank of America, stated that when this indicator is positive, TSX outperforms the S&P 500 index by 60%. He wrote on Wednesday, "In a volatile macro environment, Canada may be an attractive choice."
BMO's Belski believes that funds will eventually flow out of cash savings, coupled with increased trading volumes from foreign funds after a lackluster 2023, indicating that the performance of the Canadian stock market in the coming months will be above average.