New Sheriff in Town?

Igor Manukhov - Feb 18, 2025

Canada is not letting US stocks to run away. Keep a close eye on this relative strength pairing.

I like to review some of my past Charts of the Week to see what happened after I wrote about a subject. This helps me understand what I am doing right and what I still need to work on.
 
As I mentioned before, over the past few years, my model portfolios were heavily biased towards US stocks because of the chart below. US stocks were simply better performers relative to their Canadian counterparts. The black line on the chart below was rising above the longer-term trend line (the rising purple line). But something started to change in July 2024. Suddenly, just like in the Rocky movies, Canada began to regain ground against all odds. I wrote about it back then. The US did end up regaining its composure at the end of 2024 but notice that the black line did not surpass the previous high reached back in July. Suddenly, it is a much closer fight than anyone imagined. In fact, if we rake out the gains of US dollar against Canadian dollar, Canadian stocks are performing better (the chart below does incorporate currency fluctuations).
 
While it is too early to tell the outcome, this is one chart that I will be watching closely this year. A change in this relative strength could trigger significant rebalancing in my portfolios. Last time Canada was winning was 15 years ago. It lasted for 10 years (2000 - 2010), and it was a big-time win.