Canadian Stock Market Internals

With the rally in US stocks back toward 2007 highs the past 3 months, many may assume that Canadian stocks have also recouped their 2008-09 losses. But that would be wrong. The Canadian TSX composite at 12,700 today remains 16% below the cycle peak it reached in June 2008 (before it fell 50% to March 2009) and 10% below the rebound cyclical peak reached in March 2011.

Since March 2011, the Canadian market remains in a cyclical contraction within the broader secular bear for stocks that began from lofty valuation peaks in 2000. Moreover, as captured in the chart below, a dramatic rebound in Canadian financial shares over the past year, has masked some of the ongoing secular weakness in the engine sectors of the broader Canadian economy (and our stock market) as world demand for our rocks and trees shifts down following the global consumer credit bubble. With the Canadian realty market only now beginning to contract in earnest and Canadians back to borrowing as consumer debt hits new highs, Canadian financials look vulnerable and likely to under-perform lofty expectations and valuations from here. Once this sector cracks (as it did in both the 2002 and 2008 bear markets, losing 50% each time), we are likely to see an attractive re-entry point for Canadian dividend paying stocks. Until then, price risk remains extreme. Just as seniors and other unsuspecting folks are being set up for hard lessons they cannot afford, once more…sad.

Source: Cory Venable, CMT, Venable Park Investment Counsel Inc.

Source: Juggling Dynamite