One Less Spoken About Potential Headwind for Canadian Equity Markets in 2018

With recent surveys showing the average Canadian is more indebted now than ever before, new data shows that Canadians will be focusing on debt repayment as a top aggregate financial goal, over saving and investing, in 2018.

With 2018 looking to be a deleveraging year, investors will beg the question: what does this mean for the overall stock market?

The TSX has seen its fair share of growth in recent years; while the Canadian exchange has trailed its global peers in recent years (this past year the TSX placed 72nd out of more than 90 indices tracked globally), specific tax-favorable investing tools available to Canadians (i.e. the TFSA) have allowed for Canadians to maintain a relatively per capita high savings rate when compared to similar developed nations globally. While debt reduction overall is a good thing (and necessary considering Canadians are among the most indebted in the developed world), debt reduction at the expense of investment is something which would not be good for the overall TSX.

While it is unlikely that every Canadian will take out all of their TFSA money at the same time, a systematic reduction in the amount of savings Canadians have could potentially impact the market in 2018. Investors should keep an eye on macroeconomic data during this new year, paying attention to Canadian debt and investment ratios accordingly.

Invest wisely, my friends.