Opportunities for growth in Canadian equities

Megan Saxton - June 03, 2008

The US equity markets continue to make new lows and have finally caused a pullback from all-time highs in the Canadian market.

Oil and gas securities, plus a few momentum stocks have, for the most part, been responsible for the divergence between Canadian and US markets.

Drilling stocks and natural gas stocks have continued to improve. Oil is now over $140 per barrel. We believe a correction is likely, possibly down to $100 per barrel. US consumption is starting to be affected by the $4 per gallon price of gasoline.

By year-end, US consumers will have absorbed an extra $100 billion in energy costs if gasoline prices stay close to current levels. Countries like China and South Korea have reduced their subsidies on consumer purchases of gasoline. There is tentative evidence that Americans are also cutting back on driving and energy consumption. If this continues, we can expect hedge funds to shift from long to short positions in energy futures markets.