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Global public companies have sounded a dour note about the outlook for next several months as they reported third-quarter numbers in the past few weeks. In Canada, however, it's evident the bad times have already arrived. Investors might want to consider lightening their exposure to Canadian stocks before the news gets any worse.

Evidence abounds that Canada is already stalling badly. Bank of Canada Governor Mark Carney has forecast Canada is on its way to two years of declining growth rates. Finance Minister Jim Flaherty's fall fiscal update Tuesday pegged Canada's deficit running $7-billion above projections from just eight months ago, due in part to lower prices for commodities.

That has been borne out in third-quarter earnings from leading Canadian companies: Among the three-quarters of benchmark S&P/TSX index companies that have already reported, sales declined by close to 8 per cent in the quarter, while earnings tumbled by more than 14 per cent, led by the dismal news from the oil and gas and basic materials (mining) sectors. Bank earnings aren't out yet, but are likely to be dragged down by weak revenues from capital markets and wealth management activities. And the effects of a worsening housing market will be widely felt, in construction, retail and services sectors.

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Four years ago, Canada emerged as one of the best performers coming out of the credit crisis, commended globally for the strength of its banking system. This year's situation casts Canada in a different – but more traditional – role, as an economy that relies heavily on selling its natural resources, and whose fortunes rise and fall according to commodity prices: The S&P GSCI commodity index is down 1.6 per cent this year, on track for its first decline since 2008, on weak demand from a depressed Europe and slowing growth in China and India. In Canada, 61 per cent of raw material producers on the TSX missed analysts' forecasts, according to Bloomberg.

Despite the warning signs, the Canadian composite index has kept pace with the U.S. S&P 500 since midyear, rising by more than 7 per cent despite the darkening economic clouds. With the resolution of the U.S. fiscal cliff situation far from certain – and no apparent end to the woes in Europe – Canadian investors might want to lighten their exposure at home until the outlook improves. The challenge, of course, is finding a better place to invest for the time being.

A previous version of this article incorrectly characterized the Bank of Canada's forecast as projecting a third consecutive year of declining growth, rather than two years of declining growth rates.

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