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Heading into 2021, BMO’s chief investment strategist was predicting robust gains for the year ahead for both the TSX and S&P 500, cementing his status as one of Bay Street’s more reliably upbeat prognosticators.

In the wake of the rosy first-quarter earnings season that’s just wrapping up, Brian Belski now thinks he wasn’t bullish enough.

On Tuesday, he raised his year-end targets on both benchmark indexes as he jacked up earnings expectations for the remainder of the year. He now sees the S&P/TSX Composite Index climbing to 20,500 - a full 1,000 points higher than what he envisioned last November, and about 7 per cent above current levels.

With just over half of S&P/TSX companies reporting, first-quarter earnings season has seen more than 60 per cent of them beat the Street’s expectations. By Canadian standards, that’s a “blow-out” quarter, noted Mr. Belski.

Analysts’ earnings estimates for the full year have now been revised higher by 8.5 per cent since the start of 2021, the sharpest upward revision for annual EPS estimates in 20 years. Even more impressive: it’s well ahead of the 5-per-cent downward revision traditionally exhibited over the first four months of the year.

“As a result, it is abundantly clear to us that our original 2021 EPS target is now at risk of being too low, particularly as oil prices have remained well above our base case scenario and the broader recovery has been even sharper than we expected,” Mr. Belski said in a note.

He raised his year-end S&P/TSX EPS target to $1,180 from $1,100.

Mr. Belski’s new TSX targets will be welcomed by Canadian investors. But he expects the Canadian index to still trade at a discount to the more technology-heavy - and pricier based on price to earnings - S&P 500.

“While lower interest rates generally tend to coincide with periods of higher P/E multiples, continued longer-term challenges to global growth and commodities remain a significant growth headwind that will likely continue to limit S&P/TSX multiples,” Mr. Belski said. His new targets imply a trailing price-to-earnings multiple of 17.4 times.

For the S&P 500, he expects the index to end the year at 4,500, up 300 points from his last forecast and 8.6 per cent higher than current levels. The prediction assumes that price to earnings multiples will remain above average, at 23.7 times, amid historically low interest rates.

He now sees 2021 earnings per share for the U.S. benchmark reaching $190, up 8.6 per cent from his last forecast.

Mr. Belski and his BMO colleagues Tuesday also made two changes to their U.S. sector recommendations.

The S&P 500 energy sector was upgraded to “market weight” from “underweight,” given that crude oil forecasts have improved substantially over the past several months alongside the economic recovery.

“With that said, we still believe secular supply and demand dynamics for oil will likely make it difficult for the energy sector to sustain any type of outperformance over the longer-term,” said Mr. Belski.

The other change was downgrading consumer staples to “underweight” from “market weight.”

“It has become clear that rising commodity prices are now forcing companies in the group to deal with higher input costs, which could put downward pressure on earnings in the coming quarters,” Mr. Belski explained. “In addition, the demand spike from early pandemic response measures is likely a distant memory making the base effect for EPS expectations even tougher. Thus, we believe the sector’s performance struggles so far in 2021 will continue in the months ahead as global economic conditions continue to improve.”

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