Scotiabank sees the TSX heading lower this year as the ongoing weakness in oil prices continues to impact earnings.
Scotiabank now sees the S&P/TSX composite index ending the year at 14,800, down from its previous target of 15,000. The index was last trading in the 15,100-range on Monday.
“In light of lower earnings forecasts for that 2015-2016 horizon, we\’re reducing our index price targets,” analysts said inside a research note to clients.
The biggest drag on TSX earnings can come from energy, that the market is currently forecasting will have an earnings-per-share decline of 73% this year. Financials, which led to a large slice of earnings last year, are expected to become flat this year.
“The drop in Energy earnings and flat Financials EPS largely overwhelms the 2015 double-digit profit growth pace expected in seven from the other eight sectors,” Scotiabank notes. “Earnings in Discretionary (+24% vs. 2014), Healthcare (+24%), Industrials (+21%), Technology (+18%), and Materials (+16%) should lead TSX profit growth in 2015.”
The gloomier outlook means Scotiabank now recommends investors pick U.S. equity exposure over Canada. Scotia recommends investors underweight Canadian mining and stocks, market weight bank stocks and overweight insurance, fertilizer, transportation, consumer staples and technology stocks.