Series
What is this indicator?
This indicator is a price ratio between iShares MSCI Canada ETF (EWC) and SPDR S&P 500 ETF (SPY). It is a quick way to compare the performance of Canada and US stock markets.
It is critical to understand that, as most of naive country-to-country indicators, it does not compare one economy to another. This is more about structural differences in the economies and market regimes.
More accurate way to view this indicator as Hard Assets vs. Intangible Assets.
The Canadian index is structurally "short" innovation and "long" traditional economy. It is dominated by companies that pull things out of the ground (Energy/Mining) and the banks that finance them. SPY is dominated by companies that write code and own IP.
When inflation expectations rise, future cash flows from Tech (SPY) get discounted heavily (bad for SPY), while current cash flows from Commodities (EWC) become more valuable.
This is a "Late Cycle" indicator. When the economy is overheating and inflation is sticky, capital rotates from Silicon Valley to the Canadian Oil Sands to hide.