Once (or perhaps I should say “if”) the political bickering about the U.S. deficit is resolved, it should take very little time for the stock market south of the 49th to rally. Fundamentally, things are looking pretty good.

As you can see in the chart (courtesy of Morningstar) profitability in corporate America is raging upward. No doubt the scourge of unemployment is contributing to higher productivity. Actual earnings continue to surprise investment analysts and investors on the upside – despite the cloud of uncertainty that has caused valuations (market prices) to adjust downward of late.

As I anticipated months ago, the most attractive returns have in fact come from them most unlikely of stocks and sectors.

With a still depressed housing market (which is supposed to be crushing the consumer’s sense of personal ‘wealth’) and rampant unemployment, it no doubt comes as quite a surprise to the owners of gold ETF’s, hedge fund managers trading commodities, and the consensus among investors that 44% of the top 50 best performing U.S. stocks are tied to consumer spending.

There’s real economic activity driving this trend, and market breadth has continued to improve since the beginning of the year (see older posts).

On the other hand, Europe and especially Canada are far more of a gamble. The euro has an uphill battle – any good performance of European markets (if any) will likely be offset by currency troubles. You might say the U.S.$ is in no better shape, but it’s all relative isn’t it? The dollar has the fundamentals noted above in its favour relative to Europe.

Canada is decidedly lacking in fundamentals.

Over the last quarter, earnings have been pretty dismal – the strong C$ isn’t helping (as I suggested would be problematic in the past) profitability – commodity prices are received in US dollars. Although I am a believer that demand will rebound for metals and basic industry (did you notice U.S. Steel’s earnings surprise?) it absolutely must happen – it’s a gamble with a probability. Unknowns: If? When? How much? Currency? There may be a generous rebound in these markets but unlike the U.S. stock market, where the proof is already in the pudding, there’s much more risk.

Is it too late to play the U.S.? Trust me – all the billions and billions of dollars still stuck in emerging markets, bonds and commodity funds will take months to re-deploy money into U.S. stocks. As I highlight in my book……demand drives up prices, and supply drives them down. More demand is coming. Speaking of my book, here’s a note I got from “Investment Biker” Jim Rogers: