The market has been led by mostly large tech stocks. Some people seem quite concerned by this. If you look at most market bottoms throughout history it's not unusual for the companies that dropped the most to recover first. As many of you know, technology companies fell significantly in 2022, many of them fell more than 50%. What we learned at the end of 2022 was which companies had legitimate business models and which ones didn't. As I have discussed in my prior notes a few of the large-cap companies have recovered nicely whereas most of the mid-cap and small-cap companies have not participated nearly as much.

 

Some people worry that the narrow market breadth driving the market higher is unhealthy and the sign of a market top. If history repeats itself and we are at the start of a new bull market then the number of companies participating in the recovery should start to increase now. In the last couple of weeks we've begun to see the Russell 2000 break out above its 50 day and 200 day moving average. The Russell 2000 Index represents a basket of mid-cap companies. This is a positive sign. Combine that with second-quarter earnings starting to come out in a few weeks and we are setting up for a confirmation of a new bull market. If earnings are flat or up year-over-year the market will likely react positively.

 

As you can see from the chart below we've been through these downturns many times. When the market does start to recover it's easy to dismiss it and say that it's just a bounce. Ironically, from a behavioral science point of view most people don't get comfortable investing into the new bull market until it is securely entrenched and within 10% of its peak. Unfortunately, if we wait until it “feels right” to invest we have missed most of the gains.

 

Historically, speaking if you invested every time the market had dropped 20% you would be very happy a few years later. I realize that is a lot easier to say than do. But whatever you do, don’t listen to the pundits that say “It’s different this time”. It is not different this time, the market will grind higher just as it has for the last 100 years. The chart below shows a few examples of when people thought it was different this time. It turned out they were wrong!

 

 

I've also included a piece from our CIBC Economics Team entitled "Monthly World Market Report".

 

As always, if you have any questions please feel free to give us a call at any time.

 

Have a great weekend and for those in Calgary enjoy the Calgary Stampede!

 

Milan