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Trends & Analysis
News

HPE stock jumps 28% on Q2 beat, boom in AI business

News

Oil spikes over 1% as Israel intensifies attacks

News

Gold surges amid US-Iran deal prospects

News

Dow hits record closing high on US-Iran peace deal hopes

News

Nvidia’s stock dips despite Q1 beat, strong forecast

News

CAD falls versus USD following inflation data

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Asset Watch

Should you worry about the Dow’s divergence?

Tuesday, June 13, 2023

While developed-market indices typically move in tandem, anxiety over recessions and monetary policy have splintered some of these relationships. And though the unusual behaviour is also present at the sector and stock-specific level, something could be brewing in North America.
The Canadian and U.S. stock markets are highly correlated. And whereas the energy and materials sectors have higher weightings in the TSX Composite, financials and industrials are bellwethers of the Dow Jones Industrial Average (DJIA) and the TSX. Due to their geographical proximity and the fact that more than 75% of Canadian exports are sent to the U.S., the DJIA and the TSX tend to follow in each other’s footsteps.

However, as the DJIA races toward its 2022 and 2023 highs, the TSX has not shown the same enthusiasm. If you analyse the right side of the chart, you can see that the latter has languished recently. The TSX’s weakness is often an ominous indicator for the DJIA, so a continuation of the theme could spell trouble in the days and weeks ahead.

S&P 500 seasonality turns bearish in mid-June, and the index usually bottoms near the end of the month. But, with the June low often beneath the May low, a breach of 4,050 would not be out of the ordinary.

Are the TSX’s struggles a bad sign for the DJIA, or can the rally continue?


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