Global Equity Weekly

March 28, 2024 | 16:29

No Bear About It

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Equity markets rose further this week, with solid growth data setting the backdrop. The S&P 500 gained 0.4% on a broad mix of strength across utilities, banks and health care, while the high-fliers—technology and telecom services—lagged. The TSX added 0.8% with strength in health care, materials and energy, and the latest rally has lifted the index a solid 5.8% year-to-date. Notably, each of the TSX, S&P 500 and Nasdaq were pushing record highs this week.

Economic data continued to look solid this week. U.S. real GDP growth was revised up to 3.4% for Q4, which follows the hefty 4.9% Q3 print. The U.S. economy has churned out a strong and steady run of uninterrupted growth prints of 2.1% or better for six consecutive quarters, and we’re expecting that continued in Q1. It’s almost like the strong, steady, nearly uninterrupted run in the equity market has telegraphed this. Meantime, Canadian growth is suddenly flying over expectations too, with the January/February real GDP data coming in well above consensus. We have revised up our 2024Q1 growth forecast as a result, to 2.5% (with admittedly further upside risk).

With sturdy growth and uninterrupted equity gains, expectations for stock prices are growing very bullish on Main Street, and that’s never usually bullish. The Conference Board’s March survey showed the share of respondents expecting higher stock prices in the next 12 months jumped to the second highest on record, outdone only in January 2018. At the same time, bearish sentiment has all but disappeared. For what it’s worth, the S&P 500 corrected 17% from those early-2018 levels into the end of that year. Elsewhere, at the advisor level, the ratio of bulls-to-bears in the Investors’ Intelligence Survey has jumped above 4-to-1, which is about as high a reading as you’ll ever see and has tended to presage corrections.

And, at the individual level, the ratio of bulls-to-bears in the AAII survey is also pushing the highest reaches of past-decade norms. In all cases, a large share of respondents are bullish, but there’s also a near absence of bearish sentiment, which you might guess when gains have been nearly uninterrupted and volatility has disappeared. That’s not to say that the market has to suffer a correction, but the sentiment deck is stacked against continued strong gains, and any bad new could be tougher to swallow.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance