The Canadian banks (XFN) have outperformed their US counterparts (XLF) since 2009. They have been placed on a global pedestal due to their reluctance to participate in the subprime mortgage debt and collateralized debt obligations that precipitated the Great Recession. Their balance sheets remained extremely healthy and their stock prices reflected this to this day. But that was then...
Two of the 4 wheels have blown on the car that is the Canadian economy. Precious metals and material stocks are down some 70% since 2011. Now stocks of energy producing companies are free falling in tandem with the price of oil which seems to be in global abundance despite the fact that the opposite view held the public consensus only 6 years ago. Don't get me started on the Canadian housing market.
Banks and financial sectors reflect the overall health of a country's economy. Their relative performance is predictive of the relative performance of a given country's economy. The chart above would suggest that growth in the US economy will continue to outpace that of the Canadian economy. If the Canadian bank index is unable to post new 52-week highs and/or trends lower trouble is ahead.
