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BofA Securities quantitative strategist Ohsung Kwon believes the Canadian economy bottomed in November 2023 and is “now in a clear upturn,” with the TSX set to outperform the S&P 500.

Mr. Kwon’s predictive model for domestic growth relative to the United States, the Canada Cycle Indicator (CCI), analyzes government bond yields, analyst earnings revisions, inflation, commodity prices and Organisation for Economic Co-operation and Development (OECD) leading indicators. The strategist notes that the CCI has been a reliable predictor of TSX versus S&P 500 returns.

Sharp improvement in the OECD leading indicators for Canada and commodity prices are the main reasons for the upturn in Mr. Kwon’s model. In addition, BofA Securities economists believe that the Bank of Canada key lending rate, which is currently half a percentage point lower than the equivalent Federal Reserve rate, will be 1.5 percentage points lower by the end of 2024. The more aggressive rate cutting by the Bank of Canada would be stimulative for domestic growth.

BofA believes that persistent inflation and geopolitics are the two biggest risks for global investors and that the S&P/TSX Composite Index offers a hedge against both. Domestic commodity producers should outperform if inflation pressure continues and Canadian oil producer profits will climb if more intense conflict in the Middle East pushes crude prices higher.

Mr. Kwon suggests that global investors buy economically sensitive Canadian stocks paying dividends. The TSX currently yields 2.4 times more than the S&P 500, a record spread that should attract foreign investment.

The BofA report is clearly focused on global investors, highlighting the potential advantages of Canadian equities in terms of both future performance and risk hedging. Mr. Kwon’s argument is thorough and in the event the report increases foreign investment into the country, it is an unmitigated positive for current investors in the TSX.

-- Scott Barlow, Globe and Mail market strategist

Also see: ‘A clear path to cut rates in June’: How economists and market bets for BoC moves reacted to Tuesday’s inflation data

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Ask Globe Investor

Question: Would John Heinzl consider the TD Global Technology Leaders Index ETF (TEC-T)? Since the prices of the Magnificent Seven stocks are now beyond my means, this looks like a good way to participate. Maybe there are some drawbacks I don’t know about?

Answer: TEC has some attractive attributes. It’s well-diversified, with 246 holdings, including the Magnificent Seven stocks – namely, Microsoft Corp., Apple Inc., Nvidia Corp., Inc., Meta Platforms Inc., Alphabet Inc. and Tesla Inc. TEC’s management expense ratio is reasonable at 0.39 per cent, which is identical to the MER of another Canadian-listed tech-focused fund, the BMO Nasdaq 100 Equity Index ETF (ZNQ-T). Both ETFs also have currency-hedged versions, which trade under the symbols TECX and ZQQ, respectively.

Despite TEC having more than twice as many holdings as ZNQ, there is a lot of overlap between the funds, which explains why their returns have been similar. For the year ended March 31, TEC posted a total return of 42.2 per cent, and ZNQ gained 39.3 per cent. These returns include dividends, which are not much of a factor as both ETFs yield less than 1 per cent.

But I can’t stress this enough: Don’t go overboard with technology stocks. Many of these companies have already had tremendous runs, and some, such as Tesla and Apple, have been struggling lately. Even AI darling Nvidia is down nearly 10 per cent from its record high a month ago. With many tech companies still trading at rich price-to-earnings multiples, the stocks are vulnerable if their growth disappoints. So, by all means invest in tech, but remember to do so as part of a well-diversified portfolio that suits your risk tolerance. Remember, too, that if you hold an S&P 500 ETF, you may already be getting all the tech exposure you need, as the Magnificent Seven account for nearly 30 per cent of the index.

--John Heinzl (E-mail your questions to

What’s up in the days ahead

Billionaire investor Ken Fisher will tell us about some off-the-radar risks that could derail markets in coming months.

Click here to see the Globe Investor earnings and economic news calendar.

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