Markets in Motion Top Down View

As the New Year begins Markets in Motion, Bruce Campbell takes a top-down look at market conditions using a dashboard of short, intermediate, long-term and early warning indicators. 

While the short-term indicators remain noisy and carry less weight, the intermediate, long term indicators are decisively positive. Notably, the early warning indicator- designed to anticipate market conditions three to six months ahead is firmly green, suggesting a constructive backdrop for markets as we move forward.

Canadian Sector Performance

Shifting to Canada, Campbell reviews sector performance relative to the TSX. Cyclicals, financials and materials remain strong, which Campbell says, “shouldn’t come as too much of a surprise”, given the strong materials run last year and solid financial earnings. In contrast, real estate continues to lag while energy and industrials remain negative but are, “starting to improve.” He notes that Canadian technology remains negative, driven by a small number of names while defensive sectors such as staples, healthcare and utilities are also trailing the broader index. 

U.S. Sector Performance

Looking south of the border, Campbell describes the U.S. sector picture as, “a little bit more of a mixed environment.” Financials and communications are strong, with communications overlapping heavily with technology. One sector drawing closer attention is industrials, as Campbell observes, “it’s starting to improve.” He adds that cyclicals are also worth watching as some discretionary stocks are beginning to, “move and improve”, potentially setting the stage from broader participation.

Momentum & Risk Signals

Finally, Campbell highlights momentum and risk signals. The early warning indicator on the TSX shows, “lots of room on the upside.” Meanwhile, the U.S. signal has peeled back a little bit, likely reflecting consolidation in major indices and a pullback in technology. In addition he points to relative rotation graphs, explaining that markets like to move, “in a clockwise fashion.” This includes, improving, leading, weakening and lagging phases.

Encouragingly, he wraps up noting that several holdings are “starting to improve from a weakening quadrant heading towards that leading quadrant.” This shift he says is, “Always really interesting to see.” He also points out that it is a key dynamic investors should monitor within their own portfolio.

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