Concerns about the Canadian market are overdone, says BMO chief investment strategist

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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

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BMO chief investment strategist Brian Belski believes that concerns about the Canadian market are overdone,

“Based on our interactions with clients, one of the primary concerns and rationales for the continued steep valuation discount of the TSX is the perception that Canada faces significantly higher growth headwinds relative to its neighbour to the South. There is no denying that the higher debt loads of Canadian households and the maturity structure of the mortgage market dampens confidence, let alone buying power of the Canadian consumer over the next few years.

“Last quarter, we took profits on our US and Global Tech Overweights, but suggested buying dips. We have now seen a meaningful pullback and thus upgrade global Tech once again. We continue to prefer Europe and EM over the US, as increased chances of a US soft landing should support Cyclical markets. Our global sector allocation also has a clear Cyclical tilt. One exception is Energy, which we downgrade to Underweight (alongside the UK), given Citi’s bearish house view on oil.

“The potential similarity with what occurred in October 1987 is that the historic stock market crash was preceded by a big sell-off in the ten-year Treasury over the summer months. The 10-year Treasury bond yield rose by 203 basis points from 8.2 per cent in on 17 June 1987 to 10.23 per cent on 15 October 1987. But the other salient point to note is that when the S&P500 subsequently collapsed by 28.5 per cent in four days, and by 20.

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