Despite a small decrease in inflation in Canada, a few points force us to stay conservative. The decrease was mainly due to cyclical factors such as gasoline prices. Inflation is still at 7.6 per cent and the Bank of Canada is expected to continue to tighten financial conditions through its monetary policy. Consequently, we think the market surged too much following the decline in headline inflation. We believe that defensive stocks are attractive given the recent rise in cyclical stocks.
Relative economic performance index higher than 0.8 – Rel. EPI is a multistep calculation that compares the profitability of a company with its valuation and cost of capital. Higher profitability, a lower valuation and a lower cost of capital increase the ratio. Ninety-five per cent of the time the ratio falls between zero and two and is not meaningful below zero, which implies a negative return on capital. A ratio of 0.
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