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Equity market performance middling but still set to outperform bond markets in 2016: CIBC

Despite recent downturns, equity markets on both sides of the border expected to deliver modest returns in the coming year

TORONTO, Oct. 8, 2015 /CNW/ - While slow global economic growth will continue to drag on performance, now is not the time to bail on equities, finds a new report from CIBC World Markets.

Following the worst quarter in years, both the Canadian and U.S. equity markets will deliver overall modest but positive real returns. A modest improvement in commodity prices, marginally better overall GDP growth and the benefits of a weaker Canadian dollar on foreign earnings will drive the Canadian lift.

"Our top-down earnings model, which looks at indicators like economic growth and resource prices, points to 10 per cent growth in earnings for the TSX in the next four quarters," says Avery Shenfeld, Chief Economist at CIBC, in a report co-authored with Economist Nick Exarhos. "While slow economic growth may indicate middling equity market performance, now is not the time to sell given that alternative cash and bond yields are so abysmally low."

While promising compared to declines in the last four quarters, the 10 per cent growth outlined in the report trails the 20-30 per cent analyst consensus. Mr. Shenfeld believes this is largely because equity analysts are still in the process of moving their oil price expectations down to what investors are already assuming.

"On a forward PE basis, Canadian non-resource stocks are now at historically cheap levels relative to comparable stocks on the S&P 500, which suggests these could outperform those in the U.S. in coming quarters," adds Mr. Shenfeld.

For U.S. equities, a cyclical adjusted price-to-earnings (CAPE) ratio is consistent with a 5 per cent annual nominal return in the decade ahead, with the report's other benchmarks also spelling mediocre rather than negative returns ahead for equities.

Mr. Shenfeld also believes that companies may find it attractive to issue debt and do share buy-backs given low bond yields relative to earnings yields, also supporting equities.

"As both Canadian and U.S. equity markets will overall experience modest but positive real returns, the news has me shouting two cheers for equities," concludes Mr. Shenfeld.

The complete CIBC World Markets report is available at:

About CIBC

CIBC is a leading Canadian-based global financial institution with nearly 11 million personal banking and business clients and  three major business units - Retail and Business Banking, Wealth Management and Wholesale Banking. CIBC's wholesale banking business provides integrated credit and capital markets products, investment banking advisory services  and top-ranked research to corporate, government and institutional clients around the world. Visit for Wholesale Banking news releases and information. You can find other news releases and information about CIBC in our Media Centre on our corporate website at

SOURCE CIBC World Markets

For further information:

Avery Shenfeld, Chief Economist, CIBC World Markets Inc. at 416-594-7356, or Olga Petrycki, Director, External Communications, CIBC, 416-306-9760,