Despite the U.S. stock market’s outperformance last quarter, Canadian advisors are skeptical about whether the rally will continue, says Horizons’ Q2 2013 Advisor Sentiment Survey.
In Q1 of this year, nearly 80% of planners expected the market to rally in the first quarter of 2013. But this time around, less than half of those surveyed (47%) expect the Canadian market to continue to outperform.
These advisors shared their outlooks on 16 asset classes by indicating whether they’re bullish, bearish or neutral on the anticipated returns for each class in Q2 2013. Collectively, they were bullish about only 4 out of the 16 classes.
This negative outlook meant bullish sentiment on the S&P/TSX 60 Index decreased from 77% last quarter to 47% this quarter. Over Q1 2013, the S&P/TSX 60 Index returned 2.47%, while the Canadian stock index continued to lag behind the U.S. stock index.
However, confidence regarding the S&P 500 Index plunged from 77% to 55%. Similarly, positive sentiments about the MSCI Emerging Markets Index and the NASDAQ-100 Index also declined from 76% to 53%, and from 74% to 53%, respectively.
“Advisors [are] suggesting the strong market rally we saw in the first quarter may be coming to an end,” says Howard Atkinson, president of Horizons ETFs. “This survey was actually completed before we saw the most recent pullback in stock prices.”
Most advisors are expecting more market volatility. “The first quarter of 2013 was marked by very low stock market volatility,” adds Atkinson. So, half of advisors expect this to increase due partly to the pullback in stock prices.
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Though gold and silver bullion have historically tended to be non-correlated to stocks, the survey finds planners still aren’t optimistic about precious metals. Positive sentiment on gold dropped from 61% to 47%, and silver bullion saw a decrease of 20%, falling from 60% to 39% in Q2.
Advisors’ opinions of base metal stocks declined even more substantially, going from 57% to 29%. This is because the S&P/TSX Global Base Metals Index lost about 9.5% in Q1.
“Advisors are bearish on metals and metal stocks,” says Atkinson. “This is a little surprising given precious metals in particular tend to be defensive. Advisors may simply feel that precious metals are currently overvalued.”
Optimism over natural gas fell from 57% to 39%, despite the sector’s 20% return in Q1 2013. Bullish sentiment on energy stocks—represented by the S&P/TSX Capped Energy Index—also declined to 45% from 57% after the index lost 4.29% during the same period.
Advisors are also skeptical of the Canadian dollar due to the number of economic reports predicting the loonie will underperform the U.S. dollar over the mid-term. Confidence in the Canadian currency sunk from 33% to 14%, with bearish sentiment surging from 17% to 40%.
“Canada, up until recently, has been one of the best performing economies in the developed world,” says Atkinson. “It stands to reason the increasingly bearish sentiment on commodities and Canadian stocks has extended to the loonie.”