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Wednesday, January 30, 2008

S&P 500 and TSX extremely cheap in relation to bonds

S&P 500 and TSX extremely cheap in relation to bonds

Nick Majendie

What a week in global equity markets! For the short term, we believe that a significant rally is likely over the next few weeks/months. For the long term, in relation to bonds, we believe the S&P 500 has recently been as cheap as it has ever been since 1979, while the TSX last week was as cheaply valued as it has ever been back to the late 1950s.

As longer-term investors start to allocate assets over the next few week/months, we believe there is a decent chance that they will conclude that it makes sense to increase equity allocations against competition from Government bond yields.

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