Seinfeld had an episode where George Costanza did the opposite of whatever he thought he should do, and it turned out to be a recipe of extraordinary success. According to the chart below, our sentiment towards the market could be made into another Seinfeld episode!

 

As you can see from the chart, when investors had ultra-bullish sentiment, the next six months had a -0.9% return. Concurrently, when investors had ultra-bearish sentiment, the market was up 12.3% over the next six months. This does not bode well for letting your emotions get involved in your investment decision-making (and is one of the reasons we try and use history as much as possible to guide us in our investment process).

 

Source: RBC GAM, Bloomberg. Sentiment based on AAII members surveyed that felt the direction of the stock market over the next six months would be up vs. down. Ranges are based on standard deviations away from the long-term average. Performance is based on the S&P 500 (US$). Jan 1989-Dec 2023 The graph does not reflect transaction costs, Investment management fees or taxes. If such costs and fees were reflected, returns would be lower. Past performance is not a guarantee of future results. An investment cannot be made directly into an index.

 

I mention this chart because we have received some phone calls lately where people are concerned about the market in conjunction with the US election, the war in the Ukraine, the war in Israel, and the steep rise of a few US tech stocks. Although all these events are important and will have effects on the market, I wanted to point out that emotions should not be part of your investment process. A well-constructed, diversified portfolio that is invested with your appropriate time horizon will handle these volatile times better than any of our "gut feelings”!

 

I've also included a piece from our CIBC Economics team entitled "Anatomy of an easing cycle: Dissecting the past to predict the future”.

 

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

 

Have a great weekend.

 

Milan