Investors staring at a record-high TSX have a familiar dilemma. Some may be considering whether now is the time to buy the dip, buy the rip, or sit it out and wait for the crash everyone keeps warning about.
Let’s dive into what investors who may be concerned about the next move in the market may want to consider.
Source: Getty Images
Strong performance not an indicator of future results, but…
The S&P/TSX Composite Index just notched a fresh record around 33,970. That’s up roughly 7% year-to-date and up almost 35% over the past year. Indeed, I’d consider this a huge move for a market dominated by banks, energy, and materials, and it understandably fuels “too late” worries.
Yet, this surge has come in an environment where the Bank of Canada has paused its policy rate at 2.25%. That move has been made as inflation hovers near target and growth is expected by some to grind forward, not fall off a cliff. That backdrop matters, because it means fundamentals – not just liquidity – are doing more of the heavy lifting this time.
I still think there’s plenty of undervalued opportunities in the Canadian market relative to others. That’s what makes this time different than others. Globally, headline valuation metrics like trailing P/E (price-to-earnings) and CAPE (cyclically adjusted price-to-earnings) sit at levels that usually imply lower long‑term returns and higher volatility. That’s a valid reason to temper expectations, especially if you’re chasing speculative growth stories that have already baked in years of perfection.
That said, many Canadian blue-chip stocks are trading at valuations in the mid-teens, which is a far cry from the mid-20s many other global markets are trading at. In other words, the “market crash” narrative is colliding with the reality that a lot of boring, cash‑gushing businesses are still priced reasonably.
Fundamentals remain strong
I think investors can certainly continue to put fresh capital to work in the Canadian market. Aside from the valuation upside investors gain by putting their capital to work in the TSX, there are also strong fundamentals to consider.
Analysts still expect positive earnings growth over the next couple of years, even after factoring in slower GDP growth around the 1% to 1.5% range. That’s not boom‑time optimism, but it’s enough for high‑quality companies to keep compounding. Additionally, many TSX dividend payers maintain moderate payout ratios and trade at single‑digit to low‑teens price‑to‑free‑cash‑flow multiples. This provides these companies room to keep raising dividends through turbulence.
Put simply, if you’re buying profitable, cash‑rich companies at reasonable multiples and holding for years, your risk isn’t that the TSX is “too high” today. Rather, it’s that you might be underexposed to long‑term earnings growth. In other words, I think the TSX is one global market investors can still leg into and be happy with the result over the long term.
