Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 53
THE DRUMMER'S EAR | RHYTHMIC REASONING
(+19.7%) sectors. Healthcare (-1.0%), Industrials (+4.6%), and
Consumer Staples (+5.7%) lagged.
Fig 2: U.S., Canadian, and international equities
are trading at a premium to historical averages
23.3x
U.S. equities as measured by the S&P 500 Index delivered
a total return of 8.1% in Q3 and 14.8% YTD. Despite the
double digit returns YTD, the region has been a significant
underperformer in 2025. YTD performance has been led by the
Communications (+24.5%), Technology (+22.3%), and Industrials
(18.3%) sectors, while Healthcare (+2.6%), Consumer Staples
(+3.9%) and Consumer Discretionary (+5.3%) have lagged.
International equities as measured by the MSCI ACWI ex U.S.
Index trailed in Q3 with a total return of 7.0% (USD). YTD,
international equities are second only to LatAm in Fig 1 above
with a return of 26.6% (USD). Performance YTD was led by
the Communications (+41.5%), Financials (+34.6%) and Materials
(+28.4%) sectors. Healthcare (+8.6%), Consumer Staples (+14.3%),
and Energy (+17.7%) lagged. Regionally, South and Central America
led global markets with a 42.8% return YTD. This was followed
by Eastern Europe (+34.2%), Western Europe (+28.4%) and Asia
Pacific (+28.0%). Central Asia lagged with a return of -0.3%.
LatAm equities continued to post strong returns in Q3 up 10.3%
(USD) for the quarter, driving the region up 43.6% (USD) YTD
and well ahead of other regions. Performance YTD was led by
Technology (+101.0%), Healthcare (+88.0%) and Utilities (+64.9%).
Energy (+9.0%), Consumer Staples (+20.3%) and Industrials
(+28.6%) lagged. Colombia, Peru and Chile led the region with YTD
returns of 74.4%, 67.8% and 41.8%, respectively. Brazil lagged with
a return of 36.2%.
VALUATIONS
The strong performance in equities this year has driven valuations
for most regions above historical averages. U.S. equities are trading
furthest from 10-year averages with 1-yr forward price to earnings
ratios at 23.3x at the end of the third quarter compared to the
10-year average of 19.4x. In Canada, the current index multiple
of 17.3x is 1.7x above the 10-year average. International equities
are also trading at a premium with the index at 15.4x forward
earnings, up from 14.1x at the beginning of the year, and 1.3x above
its historical average of 14.2x. In the LatAm region, the forward P/
E has increased from 8.4x at the start of the year to 10.7x currently.
This remains below the long-term average of 11.5x and offers an
attractive discount compared to other markets, many of which are
trading at a premium.
17.3x
19.4x
15.4x
15.6x
11.5x
14.2x
10.7x
Canada
US
Current
LatAm
International
10-year average
Source: Bloomberg Finance L.P., Scotia Wealth Management
In the regional sections that follow, we assess some of the key
themes that we believe will drive performance in the year ahead.
KEY CONCLUSIONS – CANADA & U.S.
•
•
•
Earnings growth expectations for Canadian and U.S. equities
have returned to healthy levels for 2026.
Tariff clarity is supportive of equities in both regions.
Key secular growth themes will provide a tailwind for North
American equities in 2026.
Canadian Equities
Interest in Canadian equities gained traction post Liberation Day
as tariff concerns moved from a U.S./Canada/Mexico centric issue
to a wider global issue. The administration’s willingness to offer
carveouts for USMCA goods ultimately moderated the expected
impact on Canadian GDP and equities. Contributing to the interest
in Canadian equities was the growing interest in gold equities, with
bullion reaching record highs of U$3,800 during the quarter, driven
by macro uncertainty, USD weakness and Fed rate cutting.
Fig 3: Consensus earnings estimates for C2026 have
been in double-digit territory since the middle of the year
12.1%
11.9%
10.3%
11.2%
8.1%
4.5%
CY25E
CY26E
Dec-24
Jun-25
Sep-25
Source: Bloomberg Finance L.P., Scotia Wealth Management
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