Despite the U.S. stock market hitting record highs last quarter, Canadian investment advisors seem to be skeptical that the rally will continue, according to the Q2 2013 Advisor Sentiment Survey conducted by Toronto-based Horizons ETFs Management (Canada) Inc.
Last quarter, nearly eight out of the 10 Canadian investment advisors surveyed expected the market to rally in Q1 2013. This quarter, less than half of the advisors surveyed (47%) expect the Canadian stock market to continue to rally in Q2.
Collectively, advisors were bullish on only four of 16 asset classes surveyed this quarter.
Bullish sentiment on the S&P/TSX 60 Index decreased from 77% last quarter to only 47% this quarter. The S&P/TSX 60 Index returned 2.47% last quarter. Canadian stock index returns have lagged U.S. stock index returns considerably for the past several quarters.
Bullish sentiment on the S&P 500 Index, which hit record highs in March, and returned more than 10% on the quarter, also decreased dramatically from 77% to 55%. Similarly, bullish sentiment on the MSCI Emerging Markets Index and the Nasdaq-100 Index also declined significantly from 76% to 53% and from 74% to 53% respectively.
“Historically a market rally spurs more optimism, but advisors seem to be suggesting that 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.”
Half of the Canadian advisors surveyed now expect market volatility, as represented by the S&P 500 VIX Short-Term Futures Index, to increase in Q2. This may be a bearish signal, since volatility historically rises during stock market declines.
“The first quarter of 2013 was marked by very low stock market volatility. The fact that half of advisors expect volatility to increase after being bearish in previous surveys suggests that advisors may expect volatility to return along with a pullback in stock prices,” Atkinson says.
The Q2 survey shows that bearish sentiment on precious metals has also increased. Bullish sentiment on gold decreased from 61% to 47%. The price of gold dropped 4.69% in Q1. Silver bullion, which is highly correlated to gold, saw a decrease in bullish sentiment from 60% to 39%. The price of silver fell 6.57% in Q1. Bullish sentiment on gold stocks decreased from 54% for Q1 to 40% for Q2. The S&P/TSX Global Gold Stock Index lost nearly 16% in Q1. Gold stocks have lagged the performance of bullion for quite some time, and advisors seem to expect this trend to continue.
Bullish sentiment on base metal stocks declined even more substantially, from 57% to only 29%, bullish sentiment on natural gas decreased from 57% to 39%. Bullish sentiment on crude oil declined from 57% to 43%.
Bearish sentiment on the Canadian dollar increased dramatically this quarter, which could be the result of a number of economic reports predicting that the loonie will underperform the U.S. Greenback over the mid-term. Bullish sentiment on the Canadian dollar dropped from 33% to 14%, while bearish sentiment increased from 17% to 40%. The Canadian dollar lost 2.36% relative to the U.S. dollar in Q1.