Concerns about a U.S. equity bubble concentrated in large-cap stocks could have American investors looking for an out
“The market is certainly cheap and as the global economy gets better, Canada tends to have a pretty good beta to emerging economies with less of the geopolitical risk,” Picton said. He is also holding more alternative assets, as he sees problems in both the stock and bond markets.
Tech stocks have become very expensive after two straight years of double-digit gains. The S&P 500 Information Technology index currently trades at about 40 times the earnings of its 69 constituents. Some in that group have price-to-earnings ratios in the triple digits, including Crowdstrike Holdings Inc., which trades at at 551 times its earnings.
“We believe market participants are now in a high stakes game of seeing how high this bubble can blow — and most of the players are long U.S. equities because that’s where the excitement is,” Picton Mahoney’s analysts wrote.
In contrast, Canada’s benchmark S&P/TSX Composite Index trades at 17 times earnings. The most expensive Toronto-listed stocks are gold miners, though a handful of local tech darlings including Shopify Inc. also trade at over 100-times earnings. Still, tech makes up just 3.8 per cent of the Canadian market, compared to 32 per cent in the U.S.
“That would be a big bubble popper for sure,” he said by phone.