Stock markets are resilient by nature, although vulnerable to significant declines. Also, investors’ risk appetites fade when market volatility is exceptionally high. Most global stock exchanges, including the S&P/TSX Composite Index, have gone through severe corrections, yet recover every time.
In 2021, the TSX’s resiliency is evident amid the raging COVID-19 pandemic. The index hasn’t succumbed to the pressure thus far and remains in positive territory with its 9.77% gain. As of May 13, 2021, the energy (+35.41%) and financial (+17.18%) sectors outperform the broader market.
The rally appears unstoppable, despite the bubble warnings. I see three reasons why TSX stocks can march on and sustain their upward momentum. The index could even end the year at a record high.
1. Market confidence
Susan Schmidt, head of U.S. equities at Aviva Investors, finds it amazing that no matter what, the market predominantly goes up, not down. She added, “The market overall is still saying, we believe in the business recovery, and we’re still betting on it.”
The TSX, for instance, is holding steady, despite the threat of rising inflation and weak jobs market. The stock market’s performance in 2021 seems to say it could live with everything. Historically, stocks have reasonable chances of coping or keeping pace with inflation.
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2. Reflation strategy
The government’s stimulus spending and the Bank of Canada’s easy monetary policy seek to propel the economy and return normal activities. As long as the economy holds up, investors can find buying opportunities and stay invested. Canada is in the first phase of recovery following a period of contraction due to the global pandemic.
3. High vaccine coverage
Omar Aguilar, chief investment officer at Charles Schwab Investment Management, said, “The more people get vaccinated, the more they feel comfortable that things will plug forward, and that is reflected in the market.” In Canada, public health officials apply the collective or community approach.
Even as more Canadians receive their COVID jabs, physical distancing, mask-wearing, and frequent hand washing remain key. According to Dr. Howard Njoo, deputy chief public health officer, the country can loosen restrictions when it reaches high vaccine coverage.
Inflationary times tend to hammer high-dividend stocks. Thus, it’s advisable to own blue-chip stocks that will not cut dividends and maintain the payouts regardless of the market environment. Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a fail-safe choice.
Canada’s second-largest bank, along with the four big banks in the country, survive and thrive during a crisis. TD in particular is a risk-focused bank. The $158.26 billion financial institution was a standout in the 2008 global financial crisis for its steady revenue and earnings growth.
TD is the second most popular brand in Canada after Royal Bank of Canada. Across the border, it’s described as America’s most convenient bank. The 164-year dividend track record is proof of TD’s reliability as a passive-income provider. Over the last 48.28 years, the total return is a 38,681.69% (13.14%) CAGR. TD’s current share price is $87.03, while the dividend offer is 3.69%.
Favourable growth prospects
Matt Miskin, the co-chief investment strategist at John Hancock Investment Management, said many companies will grow earnings substantially or see nice earnings recovery when global growth improves. He believes investors can find them and dedicate their capital to such companies.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab.