Canadian equity strategists may have spent New Year’s Eve eating crow, as not even the most bearish outlook foresaw what turned out to be the worst year for stocks since 2008.

That hasn’t stopped them from predicting double-digit gains for 2019.

The S&P/TSX Composite Index will end 2019 at 16,644, 16 per cent above its 2018 closing level, according to the average of eight estimates compiled by Bloomberg. That would be the biggest increase since 2016, when stocks gained 18 per cent.

“Our expectation is that 2019 is going to be a better year than 2018 based on the fact that pessimism right now is at extreme levels,” Candice Bangsund, vice president and portfolio manager at Fiera Capital Corp., said in a phone interview. “When everybody’s on the same trade, when everybody’s negative, we think this is a good opportunity to go in the other direction.”

Bangsund expects the S&P/TSX to end 2019 at 16,800 amid strong earnings, and recommends investors overweight beaten-down energy stocks and financials. This time last year, she predicted the market would finish 2018 at 16,900 and later raised that target to 17,300.

Instead, the Canadian benchmark fell 12 per cent in 2018 to 14,323, with most of that drop coming in the final quarter of the year amid a decline in global stocks. Concerns about a global trade war, rising interest rates, a housing slowdown and plunging oil prices all weighed on the Canadian market.

Crude Reality

Energy stocks were the worst performers, posting a decline of 21 per cent, followed by consumer discretionary, down 18 per cent. Even pot stocks, which were a bastion of optimism for Canadian investors as the country legalized recreational marijuana, ended the year in negative territory.

It’s been a frustrating experience for investors and strategists alike. Brian Belski, chief investment strategist at BMO Capital Markets, had a strong track record of calling the market before 2018. His forecast for the S&P/TSX in 2017 was only 200 points below the final closing number while his 2016 forecast came within 12 points of the close. His estimate of 17,600 for 2018 was off by a wide margin, however. Belski sees 2019 ending at 18,000, 26 percent above current levels.

Bear Facts

“Fundamentals can, will, and should be rewarded at some point,” he wrote in a 2019 market outlook published in November. “In our view, the best time to be contrarian is when the analysis is telling you something exceedingly different from what sentiment and rhetoric is exhibiting.” He added that “Canada is rich with solid companies” and investors should take a bottom-up approach to stock picking, paying particular attention to energy and financials.

Not everyone is optimistic there will be a big rebound. Sadiq Adatia, who manages about $23 billion as chief investment officer at Sun Life Global Investments, sees the S&P/TSX closing out the year at 15,000, just 4.7 per cent above current levels. Adatia was the most bearish forecaster last year as well, initially predicting the benchmark would end the year at 15,200 and later raising that to a range of 16,000 to 16,250.

“What has me worried is that consumers are losing steam” amid rising interest rates, Adatia said in a phone interview, adding that he expects the Bank of Canada will hike rates once in 2019 but would prefer if it didn’t hike at all.

“Rates will impact how consumers spend going forward, how they deal with their debt levels and what happens in the housing market as well,” he said. However, Canada may not fare as badly as some of its global counterparts.

“We think if you hold a portion of your portfolio in Canada, it’s because of risk management,” he said. “If we get a major continuation of the selloff and we get into bear market territory, Canada might actually hold up relatively well because it hasn’t participated fully on the upside of this bull market.”

Here are the strategists’ calls for 2019, ranked from bears to bulls:

Sun Life: 15,000Edward Jones: 15,600Russell Investments: 16,000Scotia Capital: 16,500Fiera Capital: 16,800Manulife: 17,250BMO Capital Markets: 18,000Laurentian Bank: 18,000