David Rosenberg says it\u0027s time for investors to take profits from the expensive U.S. stock market and shift to investing in Canada. Read on.
Even relative to interest rates, the equity risk premium at 390 basis points in Canada presents a much more attractive risk/reward profile than the lowly 100-basis-point premium in the U.S. These are just two examples, but even looking at Strategizer’s valuation composite — covering a range of different metrics — the story is no different. At a 46th percentile reading on the TSX, prices are more attractive and better reflect downside risks than the 90th percentile reading for the S&P 500.
Moreover, despite concerns of a global slowdown, if the bulls south of the border are correct that a recession will be avoided, the reality is that, based on simple correlations, TSX earnings have the highest relation to the performance of U.S. gross domestic product. Should a slowdown not take place, and a soft landing is the actual outcome, then a catch-up trade should occur in Canadian equities, with much more room for multiple expansion given the depressed starting point on this front.
The contrast is clear, Canada has an obvious cyclical/value tilt while the U.S. is much more growth oriented, with the latter factor being an outperformer in 2023 on the back of a boom in tech/AI-related stocks. If we were to reweight the TSX to the same composition of the S&P 500, then the five per cent year-to-date performance would jump to 16 per cent, essentially in line with the 17 per cent gain in the S&P 500.
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