Bumpy ride ahead for TSX will level out by year end: CIBC World Markets
TORONTO, Jan. 22 /CNW/ - CIBC (CM: TSX; NYSE) - Sustained selling pressure over the next six months will erase two years of gains on the TSX before the index comes back to finish the year at the 13,000 mark, notes a new CIBC World Markets report. "We see a mid-year low of 11,000 followed by a spirited 2,000 point recovery over the second half of the year as central bank easing and a gradual reduction in subprime mortgage refinancings allows the index to climb back," says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets in his latest economic update. "With the subprime mortgage issue largely behind markets in 2009, and still strong growth in overseas economies, an energy and resource-based TSX should be in a position to rally in 2009," says Mr. Rubin. He is also lowering his forecast for the U.S. federal funds rate by 100 basis points to 2.5 percent by year-end. "We expect to see a succession of 50-bps cuts over the next two meetings," says Mr. Rubin. "While lower interest rates will not in itself redress the problem of rising mortgage default rates and falling housing prices in the U.S., it will help limit the fallout from the subprime mortgage market on the broader economy and credit markets." Mr. Rubin also expects the Bank of Canada will cut rates aggressively with the overnight target rate falling to three per cent. As a result of his revised targets for the TSX and interest rates, Mr. Rubin is cutting his portfolio exposure to equities, by shifting nine percentage of weighting to bonds from stocks. "While our new index weighting in equities is still vulnerable to short-term corrections in North American stock markets, it reflects our longer-term optimism about global energy and resource markets," says Mr. Rubin. The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/fedjan08.pdf CIBC World Markets is the wholesale and corporate banking arm of CIBC, providing a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world. We provide innovative capital solutions and advisory expertise across a wide range of industries as well as top-ranked research for our corporate, government and institutional clients.