Market Factors: Why many Canadian investors should consider selling some U.S. assets

This edition of Market Factors argues that many Canadian investors should think about selling U.S. stocks and also provides a warning about upcoming bank earnings. The diversion is hopefully informative about the terrifying CRISPR technology and we look ahead to important data and earnings reports in the coming week.

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Stocks

U.S. equity underperformance a reason to sell?

U.S. equities were underperforming the rest of the world by the largest margin in over 30 years at the 16-week mark of 2025. Does this mean Canadian investors should sell all their U.S. holdings and buy other international stocks and ETFs? Go all Canada in the portfolio? The answers are far from straightforward.

At the 16-week mark ended April 22, just before U.S. stocks began their latest uptrend, the MSCI All Country World Ex-U.S. index was outperforming the S&P 500 by 13.4 percentage points. The S&P/TSX Composite, in Canadian dollar terms (that will prove important) was lower by 0.9 per cent over that timeframe.

Since April 22, the index that excludes U.S. stocks is still outperforming the U.S. but the year-to-date gap has narrowed to 5.3 percentage points. The TSX is up 2.0 per cent in loonie terms, 6.6 per cent in U.S. dollars.

U.S. equities are expensive and extremely volatile. The U.S. dollar is lower on concerns that U.S. institutions – legal, political and financial – are at risk from arbitrary presidential proclamations. The temptation for Canadians to sell some U.S. exposure and buy domestic or non-U.S. foreign stocks is easily defensible.

Let me throw in another complication. Over longer time frames, the S&P/TSX Composite and MSCI Emerging Markets generate extremely similar returns once currency is taken into account. This is because developing world growth is resource-intensive and the domestic market has significant commodity exposure. Over the past 25 years, the MSCI Emerging Markets Index has returns averaging 6.6 per cent annually, just trailing the TSX’s 7.0 per cent in U.S. dollar terms. (Between 2010 and 2020, by the way, performance was identical).

Selling U.S. equities almost inevitably means reducing exposure to the world’s leading technology companies, which is also a consideration. Microsoft Corp., Nvidia Corp., Meta Platforms Inc., Alphabet Inc., Apple Inc. and Amazon.com still make up just under 30 per cent of the S&P 500.

The future path of the U.S. dollar will go a long way in determining whether selling U.S. assets is a good idea right now but since I believe currencies are inherently unpredictable, I don’t have much to add here. (There is a reason for my skepticism. When I was a mutual fund analyst there was a major international fund company that tried to add performance to global funds with a group of currency experts. The initiative was unsuccessful and quickly abandoned.)

This leaves technology, and specifically the artificial intelligence investment theme, driving the megacaps mentioned above. I definitely see the potential for disappointment for the AI theme in the short term, even if its promise is still realized later.

BofA Securities chief quantitative strategist Savita Subramanian recently noted that U.S. stocks rank as expensive on 19 of the 20 measures she follows. The strategist has also reported that valuations are by far the biggest determinant of future 10-year returns. This, on top of the currency risks noted above, imply to me that reducing U.S. exposure is prudent for many Canadian investors.

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Financials

Banks to increase loan provisions

RBC Capital Markets bank analyst Darko Mihelic warned clients about potential disappointments when TD Bank kicks off earnings announcements for the sector later this month. The culprit is PCLs – provisions for credit losses.

Mr. Mihelic forecasts a 16 per cent overall quarter-over-quarter increase in PCLs, funds that are subtracted from bottom line profits. The analyst expects the banks’ base-case economic expectations to be revised downwards to justify the increase in provisions.

RBC expects PCL increases to dent profitability during the quarter, by an average of $0.06 per share. The damage ranges from $0.09 at National Bank to $0.01 at Scotiabank.

Diversions

The remarkable ways CRISPR works

Longer-term readers of this newsletter know that no innovation scares me more than CRISPR, the gene editing technology, not least because I strongly suspect that both billionaire Peter Thiel and the U.S. military own their own machines. It is capable of enormous, lifesaving good, but also seems a potential gateway to monster-creating abuse.

I never really expected to understand how the process works because it seemed close to sorcery. But, the algorithms recently fed me this video on social media that went a long way to describing the history and development of this remarkable achievement.

A CRISPR treatment has just been approved for use on pigs to prevent respiratory disease.

The essentials

Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.

Globe Investor highlights

Larry MacDonald looks at the investment case for Shopify ahead of its earnings Thursday and finds a potential buying opportunity

Reuters’ Mike Dolan reports on how few market players have any clear handle yet on the U.S. administration’s dollar plans

The “Trump put” may be back on investors’ radar screens, but this is no time for complacency, warns Jamie McGeever

What’s up next

Domestically, the big economic announcement is employment for April on Friday, where economists expect the net creation of 5,000 jobs. The unemployment rate for the month is forecast at 6.8 per cent.

Thursday is a huge day for earnings as Canadian Tire Corp. Ltd. ($1.282 per share expected), BCE Inc. ($0.622), Hydro One ($0.547), Brookfield Corp. (US$0.901), Emera Inc. ($1.023), Canadian Natural Resources Ltd. ($1.048), Shopify Inc. (US$0.262), Cenovus Energy Inc. ($0.406), Sun Life Financial Inc. ($1.711), and Canadian Apartment Properties REIT all report. Telus Corp. ($0.22) reports Friday as does Enbridge Inc. ($0.959). Constellation Software Inc. (US$18.837) posts earnings on Monday.

U.S. earnings season slows down with only Molson Coors Beverage Co. (US$0.812) and Monster Beverage Corp (US$0.461) on Thursday of broader interest.

See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)