Key Points:
Market Overview:
- The market has been trending upward since January 2024, until recently. The S&P 500 is down 5.3% and is approaching its rising 200-day moving average.
- The NASDAQ 100 had a false breakout and is now also testing its 200-day moving average.
- Historically, the period from February through March has been weak in the first year of a Presidential term while April and May often see strength in the market.
- The U.S. Trade Policy Uncertainty Index and rising put-buying volume suggest that uncertainty is impacting investor sentiment..
Global Market Insights:
- U.S. stocks are currently expensive relative to the rest of the world, with global stocks, particularly in Japan and Europe, performing better. European stocks are benefiting from a stronger Euro, though trade concerns remain.
- Japan’s market has been rising, and the Yen is appreciating vs. all currencies incentivizing Japanese investors to repatriate assets.
- Argentina’s economic recovery highlights the impact of cost-cutting measures, which may offer lessons for broader global markets.
Global Fund Performance:
- The Global Fund has had strong performance, up 38% since inception, outperforming the All-World Index (22% in Canadian dollars). The strategy is to increase the global stock allocation from 5% to 10%.
TSX Performance:
- The TSX has shown strength despite trade concerns, outperforming the equally weighted S&P since 2021 due to favorable sector weightings.
- US$ weakness historically has benefited global stocks and commodities, and its recent decline supports this trend.
- Attention is focused on the implications of fiscal policy changes for inflation, asset prices, and overall economic conditions.
Commodities:
- Commodities, particularly copper and gold, have remained strong. Gold is seen as a solid hedge in portfolios, especially as a hedge against inflation when compared to bonds.
Gold and Tech Performance:
- Gold has outperformed the Nasdaq 100, which is tech-heavy. With significant flows into gold ETFs
- Although some consider Bitcoin to be digital gold, outflows from Bitcoin are noteworthy.
Currency Outlook:
- The Canadian dollar has shown resilience and is maintaining key support levels, which could be an indication of a positive outlook for Canada’s economy.
Investment Strategy:
- The focus is on identifying leading sectors and ensuring investments align with current market conditions.
- Defensive strategies are advised when market conditions change, and breadth models are used to ensure healthy market participation.
- The weakening breadth in the U.S. market indicates the need for caution with existing positions, though global markets (Asia, Europe, Latin America) and gold remains strong.
Sentiment and Market Indicators:
- Investor sentiment has weakened, as seen in indicators like the Investors Intelligence Index. However, many individual investors remain fully invested.
- Rising levels of uncertainty in the market are impacting investor confidence.
Sector Analysis:
- Financials: The financial sector remains strong, with rising relative strength, especially in Europe. The firm’s largest position, Fairfax Financial, continues to perform well.
- Industrials: The industrial sector has shown mixed performance. Economically sensitive companies have been affected by weaker U.S. PMI data. However, small-cap industrials and companies like Deere & Co. have performed better than the overall sector.