Cap-weighted indices continue to show constructive trends, but leadership is narrowing. US equities remain in a long-term bull market, supported by strong earnings growth and positive earnings surprises but at the same time, breadth has narrowed, with equal-weighted indices lagging and fewer companies driving index-level returns. That reinforces the need to actively monitor and remain targeted, and disciplined rather than relying on broad market exposure.
Our focus remains on areas where capital is flowing, breadth is improving, and fundamentals are “good and getting better.” International markets, commodities, energy, materials, industrials, select financials, and semiconductors continue to show strong relative strength, while long-duration bonds, consumer discretionary, defensive high-dividend stocks, low-volatility equities, and health care remain less attractive. With inflation pressures still present and long-term rates moving higher, we continue to favour real assets, dividend growth, and companies with pricing power, while remaining prepared to raise cash and manage risk if market breadth deteriorates further.
US equities remain in a long-term bull market, but market leadership is narrowing
- The S&P 500 and NASDAQ have moved back to new highs on the back of narrow leadership, supported by strong earnings growth and positive earnings surprises. However, equal-weighted indices have not confirmed those highs, suggesting a smaller group of companies is doing most of the heavy lifting.
International markets are showing improving relative strength
- Developed markets outside the US, emerging markets, Asia, Japan, Latin America, Mexico, and Canada are all showing signs of renewed leadership. After years of underperformance, several international markets are making new highs and attracting capital back into underowned, reasonably valued areas.
Commodities and real assets continue to offer strong inflation protection
- Oil, copper, aluminum, agricultural commodities, precious metals, and related equities remain areas of strength. With inflation pressures still present and long-term rates moving higher, real assets continue to look attractive relative to bonds and broader financial assets.
Rising long-term interest rates remain an important risk to monitor
- The 30-year US bond yield has moved above 5%, while bond prices have weakened. If inflation remains elevated and rates continue higher, traditional fixed income may remain challenged, making dividend-growth-oriented securities more attractive than long-duration bonds.
Sector leadership remains concentrated in cyclical and inflation-sensitive areas
- The strongest areas include semiconductors, banks, oil services, steel, transportation, chemicals, oil and gas, metals producers, and precious metals. Energy, industrials, materials, select financials, and semiconductors continue to show favourable breadth, earnings revisions, and relative strength.
We remain active, selective, and risk-aware in portfolio positioning
- We continue to focus on areas with improving breadth, positive capital flows, and “good getting better” fundamentals. At the same time, we remain cautious on weaker areas such as consumer discretionary, health care, defensive high-dividend stocks, low-volatility stocks, insurance, and broad fixed income.