Markets set for further gains, says analyst

(October 9, 2003) It’s been a year since North America’s stock markets bottomed out and began showing signs of recovery. And although the rally has been tentative at times, one analyst is predicting markets will continue to rise well into the new year.

Larry Berman, chief technical strategist at CIBC World Markets, expects two benchmark indexes — the S&P 500 and the S&P/TSX Composite Index — to post 10% increases by the middle of 2004.

Berman, speaking last night at a market outlook seminar in Toronto — sponsored by the Canadian Foundation for Investor Education and MoneySense magazine — predicts the TSX will reach 8,500 points and the S&P 500 will climb to 1,175.

The TSX closed at 7,569 on Wednesday, while the S&P 500 finished at 1,033. Both indexes have rallied more than 30% compared to this time last year.

Bond yields will also be a little higher on average in 2004, Berman said. Beyond that, the analyst offered no further predictions, pointing out that most analysts are short-term traders and prefer to avoid longer term forecasts.

But Berman did sound a cautionary note, explaining that stock markets go through four cycles: bearish, basing (recovery), bullish and consolidation (maturing/decline).

“A lot of U.S. stocks are now in a consolidation mode,” he warned.

The economic outlook for 2004 is also fairly bright, said TD Bank deputy chief economist Peter Drake, who also spoke at last night’s seminar.

Drake expects a more robust U.S. economy next year, with growth topping 4%. A series of shocks, including severe acute respiratory syndrome and mad cow disease, have hurt Canadian growth, Drake says. And although Canada will trail the U.S. in growth for the first time in five years, he still expects a healthy 3% rise in Canadian GDP in 2004.

The Canadian dollar’s strong ascent has also hampered growth, Drake adds, but he believes the loonie’s meteoric rise is essentially over and the currency will stabilize at around 76 cents US next year. “Most companies can adjust to the rising dollar and there are benefits,” he said.

For the more immediate future, Drake is sticking with his prediction that the Bank of Canada will stand pat on interest rates next week, leaving the overnight lending rate unchanged at 2.75%.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca