David Rosenberg: Cyclical sectors next 'shoe to drop' — and the TSX is especially vulnerable EconguyRosie
This disconnect will need to be resolved in the months ahead, and our expectation is that this will occur through further price declines and underperformance in cyclical sectors.Article content
The combined weight of energy, financials, materials and industrials is 74 per cent of the TSX, but only comprise 25 per cent of the S&P 500 As such, the S&P/TSX composite, which has higher cyclicality than the S&P 500 appears at risk in the near term. After all, the combined weight of energy, financials, materials and industrials is 74 per cent of the TSX, but only comprise 25 per cent of the S&P 500. As a result, it shouldn’t be a surprise that the highest correlations of the TSX — relative to S&P 500 sectors — are also in the aforementioned cyclicals.
Therefore, until more bad news is embedded in these sectors, the underperformance of the TSX , which has played out over the past month, is likely to continue. Indeed, since peaking on June 13, the relative strength ratio of the TSX has broken down, falling 7.5 per cent from its high. This has occurred as the TSX has declined 4.9 per cent, whereas the S&P 500 has rallied 2.9 per cent over the same period.
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