November 17, 1995



North American stock markets continue to perform in a positive manner. The Dow Jones Industrials average is on the verge of breaking through 5000 and the Standard & Poor's 500 Composite index through 600, both all time highs. While Canadian stock markets are currently performing well, they still have a way to go yet before breaking into new territory. Canadian stock markets are more heavily weighted toward natural resources such as metals, gold and oil & gas, all with lacklustre characteristics, for the time being. The same can be said for retail merchandising although a good Xmas season could turn things around. The star sectors have been computer related industries (anything remotely connected with the Internet), bio-technology and some entertainment concerns. Corporate takeovers are once more in fashion. With a rate of inflation below 3 %, the quality of corporate earnings looks good. In a scenario featuring less debt and relatively low interest rates, equity markets do not look overpriced. The Dow Jones Industrials average reflects a price/earnings ratio of 14.8 and a dividend yield of 2.4%, the Standard & Poor's 500, a p/e of 16.8 and 2.4% yield, while the Toronto Stock Exchange 300 index reflects a 13.2 p/e and a 2.3% yield. Meanwhile, long term US treasury bonds yield 6.3% compared with Canada's (still politically-affected) 8%. Two year maturing US treasury notes yield 5.5% while 2 year Government of Canada bonds trade to yield 6.4%. There is probably room for even better prices and lower yields. This type of stability, coupled with the appearance that governments want to reduce deficits, has attracted the international investor to the North American market once more.