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Here are some analysts' predictions for the Canadian market in 2009:

Vincent Delisle, Scotia Capital Inc.

Investors should be prepared to switch to a more offensive strategy in the coming months, said Vincent Delisle, a strategist with Scotia Capital Inc. “If all the pro-growth measures kick in by the end of 2009, portfolios should not look as defensive as they do today by the end of next year,” he said. That means less cash and more cyclical stocks and a move out of government bonds into corporate bonds and equities.

The S&P/TSX earnings for 2009 could be down 30 per cent to 40 per cent. “This is baked into the market,” Mr. Delisle said.

“Right now people are looking ahead to 2010,” he said. Scotia Capital has a 2009 target for the S&P/TSX of 10,500, a gain of 16.7 per cent from yesterday's close. It expects returns for the S&P 500 and the S&P/TSX of 25 per cent to 30 per cent over the next 12-18 months.

A rebound in earnings for the S&P/TSX in 2010 hinges on a recovery in commodity prices. For that reason, the S&P 500 should outperform the S&P/TSX in 2009, Scotia Capital said.

The U.S. economy led the global downturn, Mr. Delisle said. “The U.S. will be the first to rebound.”

Pierre Lapointe, National Bank Financial

The plunge in commodity prices and the global economic slump is bound to take a bite out of S&P/TSX earnings, said Pierre Lapointe, a market strategist and quantitative analyst for National Bank Financial Inc.

Still Mr. Lapointe's 2009 target for the index is 9,800, which would represent a healthy gain of 9 per cent from yesterday's close.

In Canada, the index is trading at 8.6 times forecast earnings, which is the lowest since 1987, when National Bank's data series began.

But there are reasons to be suspicious of the consensus earnings forecasts for a 5.2-per-cent rise in profit for companies on the S&P/TSX composite index in 2009. “Earnings go down, not up, in a recession,” he said. The average earnings decline during the past seven recessions was 35 per cent in Canada.

“Canadian earnings have just started to turn south and analyst revisions are finally catching up to the U.S. downgrades,” he said. During the past three months the consensus 12-month forward earnings forecasts have been reduced 19.1 per cent.

North American stock markets need to see a bottoming of U.S. house prices, stabilization of the financial sector, more reasonable analyst estimates and improved oil prices for sustained recovery, according to National Bank.

Myles Zyblock, RBC Dominion Securities Inc.

The carnage in the stock market this year has, not surprisingly, resulted in what appear to be attractive valuations, at least for those investors with a long-term horizon, said Myles Zyblock, the chief institutional strategist and director of capital markets research for RBC Dominion Securities Inc.

“Our quantitative team calculates that … 37.9 per cent of the S&P/TSX stocks are trading below book value, fractions not seen since the early 1990's recession,” he said.

From a sector point of view, the stock market leaders in Canada, as in the United States, have been consumer staples, telecom, utilities and health care, according to RBC.

Particularly hard-hit sectors have been energy and materials, although risks remain. “In our opinion, it is not at all clear that we have exited the financial crisis let alone are closing in on a bottom in the economy,” Mr. Zyblock said. Also, cyclical sectors tend to lag in an economic recovery.

Of the materials, gold stocks are trading at their lowest level in 25 years when compared with the underlying price of bullion, RBC said. Among the commodities, gold stocks are also the least economically sensitive.

RBC's 2009 target for the S&P/TSX is 9,750, an increase of 8.5 per cent from yesterday's close.

Nick Majendie, Canaccord Capital Inc.

“The bottoming process of the last few weeks sets the scene for a significant equity market rally in the New Year,” said Nick Majendie, chief portfolio manager, independence accounts at Canaccord Capital.

His target for the S&P/TSX is 11,935, which is about double the return he expects this year for the S&P 500. Mr. Majendie is looking for the S&P/TSX to generate a return of about 30 per cent this year.

The dividend yields for the S&P/TSX and the S&P 500 are higher than the yield on 10-year government bonds for the first time in 50 years, he said. “When the financial crisis starts to abate – and we think that process has begun – one could see inordinately fast recoveries.”

Mr. Majendie is looking for a strong rebound in commodity prices as a result of a lower to stable U.S. dollar and compelling company valuations even at the current low commodity prices. Domestic financial companies should also recover because they are in better financial shape than their U.S. counterparts, he said.

George Vasic, UBS

With governments throwing trillions of dollars toward wayward economies, UBS strategist George Vasic believes markets will stage a recovery of sorts in 2009.

His 12-month price target for the S&P/TSX is 12,500, which is an increase of 39 per cent over yesterday's closing price. While commodity prices will remain depressed – he's calling for $60-a-barrel (U.S.) oil and $700-an-ounce gold – he said the “unprecedented monetary fiscal intervention can improve credit market conditions and permit investors to apply more normal valuations to earnings.”

“Upside surprises include a return to more normal financial market conditions, which will help stabilize the global economies and resource prices,” he said.

He said the markets could be negatively affected if credit markets remain tight, which could cause Canadians to stop spending and worsen the already fragile economic situation. He will be overweight in the “more domestically oriented sectors,” and “roughly neutral” on financials.

Jeff Rubin, CIBC

Although CIBC's chief of economics and strategy expects the S&P/TSX to finish 2009 at 11,000 – an increase of 22 from yesterday's closing price – he recommends investors stay light on stocks for the first half of the year.

“While the implied 20-per-cent-plus return warrants a full weighting in stocks, the near-term risks to the market from a contracting North American economy stand in the way of overweighting stocks at this point,” he said.

He said he expects the continental economy to contract during the first half of 2009, cutting into earnings, but then begin to recover as the massive fiscal stimulus from Washington starts to take effect.

And while oil prices may be fluctuating, he said the cost of getting it out of the ground hasn't. He estimates that once demand begins to ramp up again, producers will be spending upward of $80 a barrel just to get oil out of the ground. He expects oil to finish 2009 near the $100-a-barrel mark.

Elvis Picardo, Global Securities Corp.

After the year investors were just subjected to, Mr. Picardo says 2009 should seem calm by comparison. That doesn't mean there's going to be a massive rebound, however.

“It would be imprudent to expect a massive rebound given the extent of the damage that has already been inflicted on investor sentiment and economic prospects,” he said. “However, our view is that a return to lower volatility and improved risk appetite, which we expect in 2009, may lead to modest upside for global equities from current levels.”

Warning that earnings estimates for the coming year are likely too optimistic, Mr. Picardo said the S&P/TSX should finish 2009 at 10,000 – a modest 11 per cent increase from yesterday's close. He predicts the S&P 500 will end 2009 at 950, up 5 per cent from yesterday's close.

“We expect financial markets to remain unsettled in the near term, and begin recovering in the second half of 2009,” he said. “Accordingly, our recommended asset allocation is as follows – stocks 45 per cent, bonds 30 per cent and cash 25 per cent.”