Spotlight Is On The S&P 500 But Other Markets Are Equally Impressive!

Research evidence excerpt

Spotlight Is On The S&P 500 But Other Markets Are Equally Impressive!

clear to all by now that the earnings backdrop is phenomenal in both countries. That said, there’s a lot to think about what could go

wrong. That’s the focal point of this report and the answer is different in the U.S. versus Canada. Just 20 years ago, these markets were very much in

sync, as they are now, but their compositions were also similar. The TSX was very cyclically oriented back then, as it remains to this day. The S&P

500 was also highly cyclical going into the GFC. Back then it generated about 80% of its earnings from the most cyclical sectors, but today that figure

now stands at 23%. As the weight of cyclicals decreased in recent decades, the proportion of Growth stocks in the Index surged higher. While

Growth stocks come with many advantages, they also behave differently than cyclical stocks in various macro backdrops. The playbook is not the

same as it once was. The difference in Index composition is likely to be very consequential in 2026 as inflation rears its ugly head.

Canada and the U.S. both have the benefits of monetary stimulus supporting their respective economies. The benefits of lower rates take a long

time to impact GDP, and that’s true in both countries. Typically, it takes about two years for a decline in official rates to impact economic growth so

we should start to see the true impact of stimulus in short order. But the outlook differs greatly between the two countries when it comes to

inflation. The Canadian economy has far more excess capacity than the U.S. these days, and this is especially visible in labor markets. The

unemployment rate in the U.S. is a mere 4.3% whereas in Canada it starts with a 7-handle. Worded differently, the U.S. is likely to see a quicker