TORONTO - The Toronto stock market is ending 2009 up a strong 27 per cent for the year and an even more impressive jump of nearly 51 per cent from the depths of early March when the market hit bottom and investors were pricing in another depression.
While that's a strong showing by anyone's yardstick, it still leaves the Toronto market down more than 20 per cent below the recent highs racked up in mid-2008 before the Wall Street financial crisis reverberated around the world and put the world's economy in a tailspin.
The stock market recovery this year is good news for millions of Canadian investors, who had seen hundreds of billions of dollars evaporate from the value of their stock portfolios, RRSPs, mutual funds and pension plans.
While consumer and investor confidence is still fragile, it's a lot better these days, especially since another measure of household wealth - home values - is increasing in most parts of the country.
John Finlay, a Toronto retiree who pays close attention to the stock market because a portion of his retirement income is tied up in his portfolio, is feeling a lot more confident going into 2010 than he did about 2009.
Finlay said he didn't pull out of stocks he lost money on last year, and was able to turn a profit as share values recovered since March.
"A lot of people pull out at the wrong time," he said in an interview outside an investor centre in the Bay Street financial district. "Things don't go down forever, same as they don't go up forever."
"I've been through it all before to know the world's not coming to an end."
Andrew Ho, 26, who has played the stock market for years, said he didn't sell his shares that lost money because he didn't believe his losses were unrecoverable.
"When you first initially invest, you invest for a long term and with any long term thing there's always ups and downs like a roller coaster."
He said he picked companies he knew would have strength, like those in the renewable energy sector and Ford, which he believed would not sink with the government propping it up.
"During the recession there's obviously some really good deals that you can kind of risk your money on."
He is confident his portfolio will grow as the economy picks up in 2010.
"I won't take money out, I think I'll be more of a buyer than a seller."
Bob Guo, a stock broker in downtown Toronto said his portfolio, like a lot of other Canadians, fared much better this year, and turned a profit. He added investors have reason to be optimistic as 2010 approaches.
"Last year was really bad with a lot of people concerned about the economy, but this year people are more bullish," he said.
Most analysts are confident the TSX can hold onto its gains of the last several months, building on them towards the old high just above the 15,000 mark will be a tough slog because of doubts about how well the United States and the world recover from the recession.
"There is a scenario under which, of course, equity markets could go a lot higher but I would accord it a fairly low probability," said Patricia Croft, chief economist RBC Global Management.
"(But) the stars would have to be aligned, quite frankly - everything would have to go right."
And by that, she means the world economy would have to grow at a very strong pace, led by China but joined by a healthy U.S., firm commodity prices, and a strong appetite for risk.
"And under that scenario, yes, the market could go an awful lot higher but I just don't think that's likely."
American markets have enjoyed similar strong gains during 2009 - the Dow Jones industrials is up per cent year to date while the S&P500 has advanced.
But U.S. analysts caution New York indexes will also find it tougher slogging than during the early months of the 2009 rally.
Volatility is here to stay, says S&P's chief investment strategist Sam Stovall,.
He cites the impact of hedge funds, computerized trading, inverse Exchange Traded Funds where investors can profit from a declining market and "the mindset that you really can't engage in buy and hold anymore."
Still, he sees the S&P 500, which has hovered around 1,100, rising as high as 1,250 in 2010.
Analysts say that it's important to keep this year's strong performance in perspective.
Prior to the rally taking off on March 10 - when U.S. banking giant Citigroup said it operated at a profit during the first two months of the year - investors were "staring at the worst case scenario right in the eye, which was a meltdown in the world financial system and a global depression."
The TSX had gone pretty much straight down since mid-2008. Losses accelerated in the autumn after U.S. investment bank Lehman Bros. went under, economies around the globe contracted and commodity prices tanked on the expectation of a downturn that would rival that of the Great Depression of the 1930s.
As the gloom started to lift in early March, investors seized upon economic data that wouldn't raise an eyebrow now but in those days was hailed as "less bad" and saw evidence of "green shoots" in the economy.
Investors priced in an end to recession by late 2009 - which has happened - and a strong economic recovery, helped along by the U.S. consumer, who accounts for a huge 70 per cent of the American economy.
Those hopes may be pegged too high.
Norman Raschkowan, chief investment officer with Mackenzie Financial Corp., said the good news is that there is still plenty of money on the sidelines that investors will want to put in the stock market. A big reason for that is that it's very difficult to make money outside of equities with central banks keeping interest rates near zero for the foreseeable future.
But he thinks those expecting solid economic growth could be in for a disappointment.
"You're more likely to see a very moderate, modest rebound in sort of the two to three per cent area because consumers are still going to be rebuilding their balance sheet. And companies are going to be sort of slow to rebuild inventory levels because they don't see the demand and the cost of financing that inventory is punitive."
Raschkowan pointed to two issues that will hobble the American economy next year and in turn depress the TSX.
He thinks the U.S. jobless rate, which stood at 10 per cent in November, will likely go higher.
And that will discourage consumer spending as people feel their jobs - or their entire company's future - is in jeopardy.
The U.S. housing market is the other source of worry. Raschkowan said that delinquencies in mortgages are still rising "so people still see the value of their home being a question mark in their minds."
Looking ahead, he sees the TSX going up in a sawtooth pattern during 2010, which will feature plenty of ups and downs "almost like a yo yo effect on the markets", which will result in growth for the year in the upper single digits or low double digits.
Other analysts point out that the Toronto market is particularly well-poised to take advantage of the growing Asian economies.
"We're in the value chain for what Asia wants, we're the critical component, we have everything that they need and unlike other resource countries, we also have oil," said John Stephenson, portfolio manager at First Asset Funds Inc.
"You particularly want to be in commodity oriented stocks."
Stephenson believes the U.S. dollar will continue to head lower in 2010, which is good for commodity prices and the TSX.
"Asia is firing on all cylinders (and) all you need is the U.S. to do is go sideways is to work well for investors," he said.
Standard & Poor's Stovall isn't quite as enthusiastic about China or other emerging markets noting "that they've already done well so a great year will be probably traded for a good year in 2010."
But he adds that for the long-term investor "demographics and the economic growth in China and India in particular indicates that you do need to be in those areas. The growth prospects are still very strong."
Analysts agree that investors will have to be particularly wary about two key items that have held this rally together - interest rates kept near zero by central banks and massive amounts of government stimulus.
The Federal Reserve has signalled that it will keep rates low for some time to come.
But Croft points out that rate hikes could be outside the hands of the Fed if bond yields go higher as the U.S. government goes deeper and deeper into debt
With files from Sunny Freeman.