Reducing Canadian equities to neutral weight

Here's what we're thinking

August 11, 2016

Equity markets have overcome many obstacles so far this year, including a sharp decline in the Chinese market early in the year, a deep slump in oil prices, the Brexit vote, and numerous other geopolitical events, to trade near record highs. We attribute U.S. equity market strength primarily to sharply lower bond yields that have forced many global investors to seek alternative places to invest. Indeed, the forward 12-month P/E for the S&P500 has increased from 16.3x at the end of 2015 to the present 17.2x, suggesting that a large majority of the gain in U.S. equities this year has come from multiple expansion rather than profit growth.