The amount the S&P 500 is paying out in dividends is just a fraction of what those firms can afford to pay out, according to S&P Dow Jones Indices senior index analyst Howard Silverblatt.Maksym Plotnikov/Getty Images/iStockphoto
The Dow Jones industrial average is rocketing to new highs, but the wave of enthusiasm for stocks diminishes as it crosses the border.
The S&P/TSX composite index is well below its 2008 high, and has risen just 4 per cent in the past 12 months. The benchmark U.S. index, meanwhile, is up more than 12 per cent in the same period amid optimism about the strength of the world's largest economy.
The Dow broke through 14,300 points on Wednesday, an increase of 119 per cent from March of 2009.
Douglas Porter, Bank of Montreal's chief economist, calls that a "pretty good for four years' work if you had the stomach to buy stocks during the darkest days of the financial crisis."
Stock markets on both sides of the border have climbed through 2013, after the U.S. narrowly avoided the so-called fiscal cliff. Strategists pointed to the possibility of a "great rotation" – or the move of capital back into equities from fixed income – in early 2013. Some market watchers wondered if the excitement over the Dow's high-water mark could bring even more retail money into the market.
Chris Weston, chief market strategist at Forex provider IG in Australia said yes in a note to clients Tuesday.
But in Canada, the reaction was less enthusiastic. The country's commodity-dependent economy has its U.S. counterpart for more than two years. The U.S. is Canada's largest trading partner, and the strength in its economy can buoy commodity prices and investor confidence, but Canadians are hesitant to rearrange their asset allocation. And that's even with China's growth engine firing in the background.
"The excitement that you're seeing in the U.S. isn't really translating," said Laura Wallace, vice-president and portfolio manager at Scotia Asset Management.
"Our general thesis on that is that people won't start switching out of fixed income until they start to see losses on that side of the portfolio," said Wes Mills, chief investment officer, at Scotia Asset Management.
Many investors are taking a cautious approach to equity markets and gravitating toward dividend-paying companies with a strong cash flow and predictable earnings, Mr. Mills said.
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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