Canada Quietly Outperforms U.S. With Stocks If Not PucksMichael P. Regan
Canadian stocks are beating the Standard & Poor’s 500 Index this year after a three-year hat trick of annual outperformance by U.S. equities. The S&P/TSX Composite Index has risen aboot 5 percent this year, while the S&P 500 was down about 1 percent as of the start of trading today.
The outperformance from the Great White North was ignorable for much of the year, mainly because it could be chalked up to an optical illusion caused by a weakening Canadian loonie. (Note: the currency was named after the bird on the one-dollar coin, not Toronto Mayor Rob Ford.)
For example, as recently as March 20, the Canadian benchmark was up 5.4 percent for the year and the S&P 500 was only up 1.3 percent. Yet if you converted U.S. dollars into loonies to buy Canadian stocks at the end of last year and then sold on March 20, you’d be down 0.3 percent once you converted back to the greenback. Just for fun, U.S. stocks priced in loonies were up 7.1 percent for the year on that date.
But the loonie has rebounded, so whichever way you look at it now there’s no escaping the fact that Canadian stocks are beating U.S. equities as demonstrably as their hockey team whooped Sweden in the Olympics. Priced in dollars, the S&P/TSX is still up almost 2 percent for the year.
The gains in Canada have been led by the mainstays of that market: energy and raw material producers, which were up 11 percent and 8.7 percent respectively at the start of today’s session. In the S&P 500, the same groups are nearly flat for the year.
Pavilion Global Markets Ltd. has taken notice and raised the question: what the puck is going on here? The trading firm said it has been negative on Canada’s prospects and, despite a few improving economic data points, isn’t letting the recent strength in the loonie and Canadian stocks sway it from that bearish position.
“The underlying story has not changed in our view,” Pavilion wrote in a note to clients yesterday. “We expect the Bank of Canada to maintain a dovish bias. We believe the recent rally in the Canadian dollar has been excessive and will reverse itself.”
Pavilion is based in Montreal, just like the Canadiens, which will be Canada’s sole team in the NHL playoffs for the first time in 41 years.
Let's go Flyers.