Earlier this month, the Toronto Stock Exchange (TSX) reached an all-time high, crossing the 30,000 mark. The index reached an all-time high of around 30,686 and continues to fluctuate around this level (right around 29,580 at the time of writing).
Of course, some investors may look at the move in the TSX and think there is more upside potential ahead. After all, the global economy seems to be doing well, and one thing is certain: we will need more resources in the future. On that front, the Canadian market deserves a closer look, given its resource-rich nature.
On the other hand, it is true that the number of economic warning signs and potential headwinds is increasing. Let’s see if this rally in the TSX (a move of over 80% over the past five years) is sustainable, and if more upside potential lies ahead.
The bull case
One of the key catalysts for the Canadian market relative to global markets is the way the real estate and commodities sectors are performing. Whether it’s oil and gas, timber, steel, fish or a range of other metals and minerals mined by Canadian companies, there are certain long-term trends that remain true for bulls who think the TSX can head higher.
Whether we’re talking about electrification (which requires a lot more battery minerals), the rise of nuclear energy (uranium), residential construction (wood) or simply energy for the future (oil and gas), there’s a lot to like about the Canadian market and its current makeup.
In addition, investors gain exposure to some of the most stable and sustainable financial assets in the world. It seems like a good place to invest for those outside the US looking for markets with better valuations.
The bear case
Inflation continues to plague global central banks, including the Bank of Canada. Commodity prices were volatile. And there are always looming trade issues and other geopolitical issues for Canadians to think about, coming from the US and elsewhere.
I think the potential headwinds ahead may be more centered around the bubble that appears to be developing in AI (which the Canadian market is much less exposed to), which could lead to relative outperformance for the Canadian market. But that doesn’t mean that if we do see a recession, commodity prices could fall, hampering the gains of many top Canadian stocks.
So there is some risk involved here. But most importantly, the TSX is currently an excellent market for global investors looking for diversification.
#TSX #alltime #high #late #invest #index