Outperformance in the Canadian Market

October 17, 2016

North American equity markets continued their ascent in the third quarter with both the S&P TSX Composite Total Return Index and the S&P 500 Total Return Index up 5.5% and 5.4% respectively in Canadian dollars. On a year to date basis, the Canadian market is outperforming the US market by 13.6% in Canadian dollars, as US market outperformance begins to reverse.

HINDSIGHT IS 20/20

Swings in relative performance between the Canadian and US markets are always easier to recognize in retrospect, but harder to pinpoint in the moment. The US market began its most recent outperformance cycle in early 2011. In hindsight, it is easy to see the Canadian dollar was overextended following the financial crisis in the United States, at the same time US equities had endured over a decade of negative performance and were due for a bounce. In the moment however, there was talk of the US Government defaulting on debts and the Chinese yuan replacing the US Dollar as the world’s reserve currency. Fear of the US dollar, and thus the US market, was palpable. Typically, the safest time to buy is when fear is high, but it is very hard to enter a burning building when everyone is running the other way. Fast-forward to early 2016 and a similar situation for the Canadian market. Oil had declined to a 10-year low, below $30, and the Canadian market had underperformed the US Market by the largest extent ever on a 3-year basis. Again, in retrospect, this was an obvious point to move money into the Canadian market, especially the Oil and Gas sector, but with Goldman Sachs calling for oil price to drop to the $10 level, threatening to cripple the Canadian economy, our dollar and especially our housing market, it made our recovery much harder to see.

Read full Q3-2016 Quarterly Review

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