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BMO’s chief investment strategist Brian Belski started 2019 forecasting that the S&P/TSX Composite Index would hit 17,000 by the time this year was out.

Last week’s break above that milestone for the first time ever has made him - so far at least - one of the most accurate forecasters for Canadian stocks this year.

Mr. Belski’s bullishness isn’t receding as the decade comes to an end. And if he’s right, 2020 will shape up to be another profitable year for investors in domestic equities.

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In his new market outlook released Thursday, Mr. Belski’s “base case” 2020 year-end price target is 18,200, representing a healthy gain of 7 per cent from where the index stands today.

His reasoning is similar to last year when looking ahead to 2019. The TSX is still beaten down versus other global markets and valuations are reasonable given prospects for earnings growth.

“While Canadian fundamentals have softened through 2019 as analysts have trimmed forecasts, fundamentals remain resilient according to our models,” Mr. Belski said in his forecast. “In fact, despite the downtrend in earnings revisions heading into 2020, profitability remains near peak levels, cash flow is firmly above historical averages, dividends and buybacks continue to grow, and valuations are relatively attractive.”

"As long as positive macro forces remain in place, particularly from the U.S., we believe Canadian equities offer an attractive relative value opportunity within North American markets. Furthermore, we believe earnings expectations remain cautious heading into 2020, leaving ample room for the TSX to under promise and over deliver with any upside compromise on trade, signs of positive life in commodities, or a rebound in growth."

It should be noted that Mr. Belski was originally calling for the TSX to hit 18,000 by this December. In January of this year, he trimmed that forecast by 1,000 points, a reflection of last December’s sudden downturn prior to Christmas that then unwound starting on Boxing Day.

And Mr. Belski is forecasting an even better return for the S&P 500 next year of 9.5 per cent, with the benchmark index hitting 3,400 by the time 2020 draws to a close. As is the case for his TSX target, that assumes an environment where stocks continue to grind higher, but with periods of elevated volatility as questions remain on the trade front.

The trade dispute is undoubtedly the biggest wild card heading into the new year, and should there be a “substantial” trade agreement between the U.S. and China, Mr. Belski sees potential for the S&P 500 to reach 3,675 by end-2020, and the TSX 19,100, given such a deal should ignite corporate investment and an upturn in global growth. But if trade negotiations take a turn for the worse and global recession fears reignite, he offers a “bear” case target of 2,775 for the S&P 500 and 14,900 for the TSX.

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For the TSX for next year, Mr. Belski recommends investors overweight stocks in the communication services, energy and financial sectors, while underweighting health care and utilities. He has a market weight recommendation of consumer discretionary, consumer staples, industrials, information technology, materials and real estate.

(Read the full story about BMO’s latest outlook here)

-- Darcy Keith, Globe and Mail

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Stocks to ponder

Teck Resources Ltd. Morgan Stanley analysts are predicting a rebound in global economic growth and manufacturing activity that will benefit base metals prices and miners everywhere, and they believe Canada’s Teck Resources Ltd. will be one of the most lucrative ways to benefit from the trend. Scott Barlow tells us more

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Spin Master Corp. Shares of the Toronto-based children’s toy and games manufacturer, behind brands such as Paw Patrol, Owleez and Bakugan, have been volatile over the past year owing to factors such as the impact of U.S. tariffs on Chinese goods and the loss of Toys "R" Us volume after the company’s liquidation in the United States last year. The stock is currently trading near the mid-point of its 52-week range of $34.82 and $46.61, and the average 12-month analyst price target of $46.69 suggests Spin Master should be able to return at least to its former highs. Brenda Bouw looks at the investment case.

The Rundown

How to navigate a market that has lost direction

Has the stock market reached a plateau? There are at least four reasons to think share prices have gone about as far as they are going to go during this market cycle, according to a checklist compiled by a veteran money manager. Ian McGugan looks at strategies to deal with it.

‘What can we do that will stop the bleeding of our investments?’

Poor investment returns are a concern at any stage of life, but they’re particularly worrisome when you’re on the verge of retirement. That’s the predicament a reader described to Rob Carrick recently. Read his advice here.

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Others (for subscribers)

The week’s most oversold and overbought stocks on the TSX

Short sales on the TSX: What bearish investors are betting against

Friday’s analyst upgrades and downgrades

Friday’s Insider Report: CEO accumulates shares of this beaten-down stock

Thursday’s Insider Report: Two CEOs and three CFOs are trading these stocks

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Momentum vs. quality: 15 TSX stocks that combine both

Eight U.S. home-building stocks that offer real value

Others (for everyone)

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Ask Globe Investor

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Question: I am retired and have enough savings that I could just live comfortably drawing down the principal. But all my retirement money is invested in the markets. So I am looking for a safe place to move my money. My No. 1 goal: Don’t lose my principal. My No. 2 goal: Make a 2-per-cent to 3-per-cent return after taxes. Any suggestions?

Answer: I’m not sure your two goals are compatible. According to ratehub.ca and ratesupermarket.ca, the top interest rate on a one-year GIC is currently 2.5 per cent. Even if you lock up your money for five years, the best GIC rate you’ll get is 2.85 per cent. Government bond yields are even lower. In a non-registered account, income taxes will take a bite out of these already meagre fixed-income returns. If your marginal tax rate is, say, 40 per cent, the after-tax yield on a five-year GIC would be about 1.7 per cent.

Even with such low fixed-income rates, however, I would agree that having 100 per cent of your retirement savings in the stock market is probably not the best strategy – unless you’re supremely confident in your ability to ride out a market downturn without getting rattled and selling at the wrong time. Moving a portion of your money into a high-interest savings account (to maximize flexibility), GICs or bonds will help to control your risk and keep your emotions in check. The percentage you allocate to stocks compared with fixed-income depends on factors including your age, risk tolerance and whether you are receiving income from a defined benefit pension, the Canada Pension Plan and Old Age Security programs. Generally, the more sources of guaranteed income you have, the more you can allocate to equities.

It isn’t just the proportion of stocks that matters, however; quality is also important. I suggest that you review your stock holdings with the goal of reducing or eliminating your exposure to speculative investments and focusing on high-quality companies such as utilities, power producers, telecoms, banks and others that pay dividends and raise them regularly. Although stock prices bounce around, many dividend-paying companies have yields that are substantially higher than GICs. In my experience, receiving steady cash flow that grows over time is one of the best ways to build your wealth and stay calm during market downturns. You can see examples of such stocks in my model Yield Hog Dividend Growth Portfolio. Investing in broadly diversified exchange-traded funds is also a good strategy if you would prefer not to hold individual companies.

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

This weekend, Rob Carrick presents the fourth annual robo-adviser guide.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff

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