BMO chief strategist Brian Belski noted the significant outperformance of Canadian stocks versus the S&P 500 in January but warned investors to pull in their horns a bit and pay closer attention to valuations as 2022 progresses.
The returns of the S&P/TSX Composite Index beat the S&P 500 by about five percentage points in January and Mr. Belski noted that this was the biggest relative outperformance since 2009. The sell-off in U.S. technology stocks combined with strong returns from the domestic energy sector were a big driver of the trend but the strategist also noted that valuations played an important role.
“The key underlying trend from our perspective was a valuation correction driven largely by receding earnings,” he wrote. “In fact, the top two quintiles composed of the highest valuation stocks in the TSX have seen their 2022 EPS estimates revised lower on average by 1.9% and 1.5%, respectively, over the […]
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