The S&P/TSX Composite index might see an “immediate” lower of larger than 10 p.c consequently of the incipient Canada– united state occupation battle, a Jefferies Financial Group skilled claims, with an final lower “upwards of 20 per cent” possible “when the dust settles.”
In a word to traders printed late Sunday, analyst John Aiken says the implications of the tariffs, ordered by U.S. President Donald Trump which had been set to start Tuesday, have been “not effectively priced into equities,” with the TSX rising not too long ago even because the Canadian greenback has dropped.
“Given the divergence between the CAD and the S&P TSX, the immediate impact could be a decline of upwards of 10 per cent as the S&P TSX catches up with the decline in the CAD,” Aiken wrote.
“The longer the tariffs are in place, the more damaging it will be to the Canadian economy.”
Modelling a “roughly 10 per cent decline in earnings projections and likely a couple of turns off the P/E [price-to-earnings ratio]” of the index, Aiken says Jefferies “would not be surprised to see an upwards of 20 per cent decline in the index.”
CIBC analyst Ian de Verteuil provides an identical evaluation of the market’s lack of anticipation of the commerce struggle, although with a considerably much less dismal forecast of the affect.
“We do not believe equity investors have incorporated much risk of meaningful tariff action against Canada,” de Verteuil stated in a word on Sunday.
“If, as we expect, these tariffs remain in place for some period, we would not be surprised to see a five per cent correction in Canadian equities. Some of the effect on the economy might be mitigated by a weaker Canadian dollar.”
That 5 per cent drop is anticipated “in the coming week,” de Verteuil writes, “with the downside mitigated by the global nature of most of the companies in the index.”
Some observers count on negotiations to lead to tariffs having restricted scope or period, de Verteuil says, however he argues that “so far it appears the Trump administration sees limited upside in accepting Canadian concessions.”
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“Finally, the asset managers will likely face renewed challenges on inflows and domestic equity valuations, but this could be offset by CAD dollar translation benefits of U.S. equities held in their mandates.”
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