My old football coach had a simple message for the team: focus on the game at hand rather than lingering on the glory or disappointments of the last game. Yes, analyze what went right and wrong – but then concentrate on the here and now.

Strangely, his advice has had a direct bearing on my subsequent three decades as an investor. While a sound analytical understanding of financial market history is useful, markets are inherently forward-looking – and your returns will depend on how well you’re positioned for future developments.

With this in mind, let’s briefly review the spectacular recovery of the Canadian markets in 2016 after the dismal performance in 2015 – and then focus on where Canadian markets could be headed.

Regular Canadian Edge readers will remember the headline of our January 2016 edition: “Nowhere to Go but Up.” A little presumptuous maybe, but we based our prediction of a solid Canadian equity market recovery in 2016 on a rational analysis of a number of factors:

Statistical evidence that pointed to a high probability of a recovery, which invariably follows after a drop of 20% or more (in US$) over rolling 12-month periods;

Further statistical evidence that indicated a very low probability of a 6^th year of underperformance versus the U.S. equity market; and

Valuations in the Canadian market that were considerably cheaper than in the U.S. market — which, combined with reasonable growth prospects, contributed to a reasonable investment case.

Of course the Chinese year of the Monkey has some way to go, and a lot can happen between now and the end of 2016. But so far, both the overall Canadian market and the Dividend Champions portfolio are up by 20% in U.S. dollar terms this year, comfortably beating the 6% return of the U.S. equity market.

Rather impressively, the top five stocks in the Dividend Champions portfolio increased in U.S. dollar terms by an average of 45%, with the top performances coming from TMX Group, Whistler Blackcomb and InnVest REIT.

But let’s not rest on our laurels. After all, those returns are history now — and apart from taking some comfort from the recovery in the Canadian market, we should focus on the future. How does the Canadian market look going forward?

From a statistical perspective, we seem to be in the initial phase of an upturn for Canadian stocks in the long-term performance cycle — meaning the Canadian market in U.S. dollar terms would continue to perform better than the U.S. stock market. Obviously, this will not happen in a straight line, but the trend could continue for several more years. The graph illustrates the point.

Canadian stocks also look good from an earnings standpoint. We can look forward to better profits in 2017 from Canada’s mining and commodity companies, as their low base from 2016 becomes easier to beat. Banks and insurance companies, another large component of the local market, will continue to muddle through 2016 and probably do somewhat better in 2017. The big risk for the banks is the super-hot housing market; if it collapses, that would put a dent in bank profits. But overall, the profit base of the Canadian equity market is expected to grow by 6% over the next 12 months.

From a valuation perspective, the Canadian market trades at 16 times the 12-month forward earnings estimate, which is still cheaper than the U.S. market. When interest rates are factored into the equation, the equity market also does not look expensive.

The bottom line: while it’s unlikely that the Canadian market will continue on its hot streak without pause, we feel comfortable suggesting that U.S. dollar-based investors would continue to see a better performance from their Canadian equity investments than the U.S. part of the portfolio – and that this outperformance may last for several years.