A vaccine rollout would benefit Canada more than most countries
As the first viable COVID-19 vaccines moved from laboratory to horizon in late November 2020, Canada's investment community began translating hope into numbers. A broad survey of portfolio managers and strategists converged on a forecast that the Toronto Stock Exchange would climb nearly eight percent through 2021, surpassing its pre-pandemic record — a projection rooted not in optimism alone, but in the particular character of a market built around banks, energy, and the rhythms of the real economy. It was, in essence, a wager that the world would remember how to move again.
- The TSX had fallen to an eight-year low in March 2020, and while it had recovered substantially, strategists believed the most meaningful gains were still waiting on the other side of vaccine distribution.
- More than three-quarters of poll respondents explicitly tied their forecasts to vaccine developments — making the entire outlook contingent on a medical and logistical achievement still unfolding in real time.
- Canada's index carries an unusual weight of cyclical stocks — financials and energy — sectors that don't just recover with the economy but tend to accelerate ahead of it, amplifying the potential upside.
- Pent-up consumer demand, American stimulus dollars flowing northward, and a price-to-earnings ratio far below the S&P 500 all pointed to a market with significant room to run once confidence returned.
- The convergence of rebounding earnings, central bank stimulus, and government fiscal support was expected to lift the TSX to 18,400 by year-end 2021 — a new all-time high built on the architecture of reopening.
In late November 2020, as effective COVID-19 vaccines began to emerge from pharmaceutical trials, Canada's investment community was already pricing in the recovery. A Reuters survey of more than twenty portfolio managers and strategists found broad consensus that the S&P/TSX Composite would climb nearly eight percent over the coming year, reaching 18,400 by the end of 2021 — a meaningful upward revision from forecasts made just three months earlier, and a new all-time high surpassing the record set in February.
The index had endured a brutal spring, plummeting to 11,172 in March — an eight-year low reflecting the shock of lockdowns and economic paralysis. The rebound since then had been real, but strategists believed the larger gains lay ahead. The TSX's heavy weighting toward financial institutions and resource companies made it uniquely positioned to benefit from reopening: vaccines meant demand, demand meant earnings, and earnings meant a market catching up after being left behind during a pandemic that had favored technology over cyclicals.
Sadiq Adatia of Sun Life Global Investments pointed to American stimulus, accelerating vaccine distribution in the second half of 2021, and a gradual return to normal operations as the pillars of the rally. Matt Skipp of SW8 Asset Management noted that more than half the index's value came from cyclical stocks — the kind that rise faster than the economy when conditions improve. Mike Archibald of AGF Investments expected pent-up consumer demand to surge once confidence returned, with energy normalizing and banks writing more loans under better credit conditions.
The valuation case was equally compelling. The TSX traded at a forward price-to-earnings ratio of roughly thirteen, compared to 22.4 for the S&P 500 — a discount that suggested room to run. A slight majority of respondents believed corporate earnings would return to pre-pandemic levels within a year, supported by the triple convergence of rebounding profits, central bank monetary stimulus, and government fiscal spending. The index was expected to close 2020 near 17,100 — but 2021, the strategists believed, would be a different story entirely.
In late November 2020, as the first hints of effective COVID-19 vaccines began to emerge from pharmaceutical laboratories, Canada's investment community was already pricing in a recovery. A Reuters survey of more than twenty portfolio managers and strategists found broad consensus that the Toronto Stock Exchange's main index—the S&P/TSX Composite—would climb nearly eight percent over the next year, reaching 18,400 by the end of 2021. That forecast represented a meaningful upward revision from predictions made just three months earlier, and it would mark a new all-time high, surpassing the previous record set in February.
The index had endured a brutal spring. In March, it had plummeted to 11,172, an eight-year nadir that reflected the shock of lockdowns and economic paralysis. The rebound since then had been substantial, but strategists believed the real gains lay ahead. The reasoning was straightforward: the TSX is not like other major stock markets. It is heavily weighted toward financial institutions and resource companies—sectors that thrive when the economy is growing and people are spending money again. A vaccine rollout would unlock precisely that scenario.
Sadiq Adatia, the chief investment officer at Sun Life Global Investments, articulated the case plainly. The rally would extend well into 2021, he argued, as American stimulus money flowed north, vaccine distribution ramped up in the second half of the year, and companies gradually returned to normal operations. Three-quarters of the poll's respondents said their forecasts were explicitly anchored to recent vaccine developments. The logic was not speculative; it was mechanical. Vaccines meant reopening. Reopening meant demand. Demand meant earnings.
Matt Skipp, president of SW8 Asset Management, noted that Canada would benefit from this cycle more than most developed nations, precisely because of the TSX's composition. More than half of the index's value came from cyclical stocks—the kind that rise and fall with the business cycle. When the economy accelerates, they accelerate faster. Financial stocks would benefit from increased lending and consumer activity. Energy stocks would see demand return to normal levels. The Canadian banks, in particular, stood to gain from improved economic conditions.
Mike Archibald, a portfolio manager at AGF Investments, expected pent-up demand to create a surge in economic activity in the latter half of 2021. People had postponed purchases, delayed travel, deferred major decisions. Once vaccines were distributed and confidence returned, that deferred spending would materialize. The energy sector would see demand normalize. Banks would write more loans and see better credit conditions. It was a straightforward story of suppressed activity finding release.
The valuation picture also favored the TSX. Using forward-looking earnings estimates, the index traded at a price-to-earnings ratio of about thirteen, compared to 22.4 for the S&P 500. It was cheaper, in other words—a market that had been left behind during the pandemic, when investors favored technology stocks and other sectors less dependent on economic cycles. That discount suggested room to run.
A slight majority of contributors to the poll believed corporate earnings would return to pre-pandemic levels within a year or sooner. Angelo Kourkafas, an investment strategy analyst at Edward Jones, saw three forces converging: rebounding corporate earnings, ongoing monetary stimulus from central banks, and fiscal stimulus from governments. Together, they would provide broad support for equities. The index was expected to end 2020 at 17,100, barely moved from its level at the time of the survey. But 2021, the strategists believed, would be different.
Citas Notables
The run-up in stocks will likely not end in 2021 as stimulus likely comes early in the new year, vaccines start to get distributed in the second half of the year and most companies go back to normal in the latter part of 2021.— Sadiq Adatia, chief investment officer at Sun Life Global Investments
A vaccine rollout would benefit Canada more than most countries because of the large proportion of value and cyclical stocks on the TSX.— Matt Skipp, president of SW8 Asset Management
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Why does the TSX matter more than other stock markets right now?
Because it's structured differently. Half its value comes from banks and resource companies—the kinds of businesses that only do well when the economy is actually growing and people are spending. Most other major indexes have much more technology in them, which did fine during lockdowns. The TSX got left behind.
So the vaccine is the key to unlocking what's already there?
Exactly. The index had crashed in March like everything else, but it hadn't recovered as much as the S&P 500 or the Nasdaq. Strategists saw that as an opportunity. Once vaccines rolled out and people could travel, eat at restaurants, borrow money again, the TSX's heavy weighting in banks and energy would finally catch up.
The forecast was for 18,400 by end of 2021. That's eight percent growth. Does that seem conservative?
It's not aggressive, no. But remember, this was November 2020. Vaccines hadn't been deployed yet. Nobody knew how fast rollout would happen or how quickly confidence would return. Eight percent was saying: we believe in recovery, but we're not betting the house on it.
What about the companies themselves? Were earnings actually expected to recover?
Yes. A majority of the strategists polled believed corporate earnings would return to pre-COVID levels within a year. That's the foundation of the whole thesis. If earnings don't come back, stock prices don't go up. But they expected them to.
And the valuation gap—the TSX trading at thirteen times earnings versus twenty-two for the S&P 500—that's real?
It was real. The TSX was genuinely cheaper. That's partly because it's less fashionable—fewer tech stocks, more old-economy stuff. But it also meant there was room for the market to re-rate upward if the economy actually recovered.
Did anyone express doubt?
Not in this poll. Three-quarters of respondents explicitly said their forecasts were based on vaccine progress. There was consensus. The only uncertainty was timing and magnitude, not direction.