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BofA Securities equity and quantitative strategist Ohsung Kwon provided some welcome news for domestic investors, arguing compellingly that the S&P/TSX Composite will outperform the S&P 500 for the coming decade.

An ongoing regime change, where deflation, low rates and globalization give way to inflation, de-globalization and higher commodity prices, is the biggest reason Mr. Kwon expects Canadian stocks to outperform. “The expected upcycle in inflation and commodities should translate to the TSX outperforming over the next decade,” he wrote in a research report.

The domestic benchmark is cash rich and dividend-heavy, making it more resilient to market volatility. Adjusted for market capitalization, the TSX is yielding twice as much as the S&P 500 for the first time. Canadian equities also carry more cash than U.S. stocks once market cap is considered.

The Bank of Canada has front-loaded interest rate hikes to a greater extent than the Federal Reserve, leaving U.S. stocks confronting more hikes ahead. BofA also believes that when all is said and done, the domestic policy rate will stop at 4.5 per cent relative to U.S. rates at 5.0 per cent. This would leave monetary conditions looser and more conducive to growth in Canada.

S&P/TSX Composite valuations are more attractive than south of the border. Mr. Kwon calculates that based on the TSX’s current price to earnings ratio, investors can expect 6.5 per cent annual returns on average, plus 3.4 per cent in dividends, over the next ten years. This compares favourably to the implied S&P 500 annual total return near 8.0 per cent. (He cautions, however, that valuation levels are a poor indicator of shorter-term returns.)

BofA also sees the domestic stock market as better prepared for a potential recession. Based on the equity risk premium (ERP, essentially the difference between the earnings yield and the risk-free bond yield), the TSX reflects an 80 per cent chance of recession. Mr. Kwon estimates that the S&P 500′s ERP represents only 5.0 per cent preparation for recession.

Canada should also benefit from the expected trend of de-globalization. As manufacturing capacity returns from the developing world, Canada’s status as America’s largest trading partner could attract new investment.

The military conflict and energy shortage in Europe underscore Canada’s attractiveness as an investment destination based on current trends. Mr. Kwon wrote, “Canada is uniquely positioned with both energy and food security, as well as political stability, which we believe is critical in the 2020s”.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Shawcor Ltd. (SCL-T) Year-to-date, Shawcor’s share price has nearly doubled in value, making it the 10th best performing stock in the S&P/TSX SmallCap Index. The stock still has a unanimous buy call from seven analysts and is trading at a deep discount to its historical average multiple. Jennifer Dowty looks at the investment case to find out why Shawcor shareholders are having a very good year.

The Rundown

Stay sidelined or scoop up stocks? Investors weigh choice as market slides

As markets have tumbled, wary investors have cut their stock holdings this year in favour of safer terrain, drawn by higher yields on everything from Treasuries to money market accounts. Yet some investors are beginning to worry that sitting on the sidelines could eventually cost them once the market turns. Missing out on a few big days of gains can cut overall returns over time, while previous market bottoms have been marked by furious rallies that have rewarded those who stuck it out in stocks. Lewis Krauskopf reports from New York.

Also see: Dip buyers may be burned again as another U.S. stock rally falters

Central bankers are in fantasy-land and we’re all going to pay the price

Economist David Rosenberg has some very tough words for Canadian and U.S. central bankers as they continue to raise interest rates at a breakneck pace and disturb asset prices.

Also see:

The next global financial crisis could be lingering around the corner

Analysts cut Canadian dollar forecasts as recession risk looms

Big banks for your GICs? Stop laughing and check out their special rates

On savings accounts, the big banks are simply unwilling to compete with the best rates available. The same can generally be said of guaranteed investment certificates, but there are exceptions that crop up from time to time. Now is one of those moments, as Rob Carrick tells us.

Don’t just buy the dip – buy the crash too

Many investors and economists will tell you to “buy the dip,” but few of them will also say to “buy the crash.” Oftentimes investors and economists go quiet somewhere between a 5-per-cent and 25-per-cent downdraft, disappearing from public view or expressing hesitation about buying into the market. Instead of chipping away and adding to positions during sell-offs, they are beset by panic, paralysis and fear. In the process, they miss the opportunity of picking up stocks on the cheap, forgetting that one, three, five and 10 years out, equities are often higher. Philip MacKellar of The Contra Guys explains, and has a suggestion on one stock to buy right now.

Untangling luck and skill in investing

What is the ratio of luck to skill in the following pursuits: picking lottery tickets, running a race and investing? Most people would say that picking lottery tickets is all luck. And that the result of a running race is all ability. But what about investing? Biff Matthews has some insight.

Canadian cannabis stocks surge after Biden pardons offenses, calls for review of law

Shares of Canada’s largest cannabis companies leaped sharply on Thursday after U.S. President Joe Biden announced plans to review how the drug is classified under federal law and said he will pardon Americans with previous cannabis offences. While past hopes for sweeping legalization have repeatedly been dashed upon reaching the U.S. Senate, analysts say this most recent market swell reflects investor enthusiasm – and impatience. Irene Galea reports.

Others (for subscribers)

Number Cruncher: 11 top-ranked U.S. stocks showing price momentum in beaten-down sectors

Number Cruncher: 14 balanced fund alternatives for the whiplashed investor

The highest-yielding stocks on the TSX, plus risk data

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Thursday’s Insider Report: CEOs are buying these three stocks that analysts are bullish on

Ask Globe Investor

Question: Does John Heinzl plan to start a new portfolio now that his five-year returns are in, as he did with his previous model dividend portfolio?

Answer: No. I plan to continue managing the current portfolio. The previous model portfolio was wound up in 2017 after five years because it was part of the Globe and Mail’s Strategy Lab series, which was coming to an end. That’s not the case with the current portfolio. As always, I’ll continue to update readers whenever I buy or sell a security.

--John Heinzl

What’s up in the days ahead

Ian McGugan delves into the market volatility we’re seeing this month and explains why investors are misplaced betting on a central bank ‘pivot’.

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

More Globe Investor coverage

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Compiled by Globe Investor Staff

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