Is a TSX 16,000 in the Cards for 2017?

Market sentiment across a number of stock indices globally has been very bullish of late. Many analysts and investors have bought into the recent “Trump rally” since November of last year, which has resulted in global markets generally seeing very strong the U.S. election over the past two quarters.

In fact, since the election in November, Canada’s S&P/TSX Composite Index (TSX:^OSTPX) has increased approximately 6% with some of the gains actually dissipating in recent months from a peak experienced in February, when the S&P/TSX index hit an all-time high of 15,922. The index currently sits just above the 15,500 level, and investors want to know: will the index finally surpass the 16,000 mark this year?

I’ll take a look at some of the factors that would contribute to such a bounce.

Contributing factors

For the index to continue to rise, most analysts point to the need for commodity prices to sustain a significant rebound for some amount of time during the year. Some analysts believe that commodity prices have indeed bottomed, and a continued rebound in commodities is just around the corner.

Others, however, have taken the contrarian position and posit that the supply/demand equation for many commodities, such as oil or gold, may remain out of whack for some time, providing headwinds to these sectors, meaning a “TSX 16,000” may be a ways away.

Housing is another sector many have been focused on of late. The fate of Canada’s housing market is still a very hotly debated topic. The housing sector remains Canada’s largest in terms of GDP contribution with the real estate sector holding top spot among other industries as a percentage of value of GDP; more than 12% of the economy relies on real estate compared with approximately 8% for the resource sector (mining, quarrying, and oil or gas extraction) as of 2012.

Bottom line

The Canadian economy is uniquely exposed to housing and commodities in a way that only a few other countries are currently exposed. With a Canadian dollar that has continued to depreciate of late, as well as commodity prices that many analysts think seem to have bottomed out, the case for a TSX 16,000 level is one that is not entirely out of the question for 2017.

That said, I believe that prevailing headwinds related to the country’s largest sector by percentage value of GDP (housing) will likely continue for some time, meaning investors may need to wait for a 16,000 level for the S&P/TSX index.

Stay Foolish, my friends.

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Fool contributor Chris MacDonald has no position in any stocks mentioned.

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