BMO Capital Markets said that the Canadian stock market will continue to break records in the coming months due to the preparation of the small cash reserves and inflows from foreign investors.

After hitting an all-time high on Monday, the S&P/TSX Composite Index closed at 23121.73 points on Wednesday, boosted by the surge in prices, according to Brian Belski, chief investment strategist at the bank.

Belski said that small investors had a strong cash position and could release it at any time. He noted that while institutional investors had deployed some excess capital in the first half of 2024, Canadian households continued to hold the highest level of cash in a decade in the first quarter.

“Our research shows that when cash positions come off their highs, the TSX tends to bottom and deliver strong returns, and the highs of money market assets often coincide with the lows of the TSX,” Belski said.

Foreign investors have been net sellers of the Canadian stock market so far this year, but have slowed their selling pace in the past 12 months, and Belski’s team expects the flow of funds to eventually reverse.

American Bank’s research also showed that there is more room for the Canadian stock market to rise. Its Canadian cycle indicator, which is based on historical data to predict the performance of the Canadian stock market relative to the S&P 500 index, turned positive for the first time since March 2023.

Ohsung Kwon, an analyst at the bank, said that when the indicator is positive, the TSX outperforms the S&P 500 index by 60 per cent. He wrote on Wednesday: “In a messy macro environment, Canada may be an attractive choice.”

BMO’s Belski said that the eventual release of funds from cash savings, combined with an increase in trading volumes after a difficult 2023 for foreign investors, suggests that the Canadian stock market will outperform expectations in the coming months.