The way strategists at RBC Global Asset Management see things, the U.S. stock market looks far more appealing than the Canadian market right now.
In their summer global investment outlook, strategists argue that the S&P 500 remains 36 per cent below its fair value assessment after being "deeply oversold" in 2009. Profits have been soaring largely because companies responded to the economic downturn with sharp cost cutting out of fear that another Great Depression was in the works. Now that profits are recovering, these low costs are a bonus.
"Even if revenue growth remains sluggish, the high degree of embedded leverage suggests a small gain in sales will be enough to push earnings significantly higher," the strategists said in their published outlook. "And if revenue growth continues to build momentum, an epic profit cycle could be upon us."
That's the first time we've seen the word "epic profit cycle" in this investment round, which certainly implies that RBC is at the bullish end of the investment spectrum.
However, strategists are lukewarm on Canada. They believe that the S&P/TSX composite index is the developed world's most fully valued market, trading near what they see as the midpoint of its fair-value band. However, they're bullish on industrials (economic activity is picking up at the same time that government stimulus spending is coming through) and information technology stocks (reasonable valuations).