Here's where RBC expects the TSX to be at in 18 months

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RBC Capital Markets is calling for the S&P/TSX composite index to continue its rally.

The firm recently published its summer 2016 "Canadian Strategy: The Investment Outlook" research report. In the report, the S&P/TSX composite index was targeted to reach 15,800 by the end of 2017. This level equates to a price-to-earnings multiple of 18 times the firm's 2017 earnings forecast, viewed as a reasonable valuation, noting that the yield on the TSX Index is at a record high, relative to bonds.

The firm's Canadian equity strategist Matthew Barasch says the bullish call for the TSX is predicated on a number of factors, including the positive global macroeconomic environment, noting the resource-weighted S&P/TSX composite index is anticipated to benefit from stimulative monetary policy measures, particularly from the United States and China.

Rising oil prices are highlighted as another key driver for the stock market. The firm's commodity team anticipates the price of oil will continue to recover, forecasting an average West Texas Intermediate oil price of U.S. $55.50/barrel of oil equivalent (boe) in the second half of this year, rising to an average price of $64/boe in 2017. Higher oil prices will benefit the S&P/TSX composite index, given that the energy sector has a weighting of approximately 20 per cent on the index.

In addition, from a technical analysis perspective, the current uptrend remains intact. RBC technical analyst Javed Mirza says that "the long-term cycle data suggests that the next upleg in the secular bull market in equities is underway. This upleg should take us out into the next cycle peak on the TSX Composite in 2018-19."

The firm is also anticipating solid earnings growth, with TSX earnings per share forecasts of $729 in 2016 and $863 in 2017.

In terms of asset allocation, the recommended growth portfolio strategy asset mix is 57.5 per cent stocks, 37.5 per cent bonds, and 5 per cent cash. The firm has overweight recommendations on real estate investment trusts, gold stocks, rail stocks, and energy producers. The segments of the S&P/TSX composite index with underweight recommendations are utilities, health care and fertilizer stocks.