Milan Cacic
June 21, 2024
Money Financial literacy Economy Commentary Weekly update Weekly commentaryTIME TO SELL ?
Over the last week, I've had a few people ask if the market was too high and if it was time to sell. Everyone's circumstances are different, but for many the answer may be no.
Sir John Templeton once said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria". So, does it feel like there is euphoria in the market? I don't think most people are feeling euphoria (unless they own Nvidia of course). If you look at the chart below, you will realize that, apart from the NASDAQ, most markets and sectors have not performed that well. The TSX 60 is up 1.97% year-to-date, the Dow Jones Industrial Average is up 2.96%, and the iShares Core Canadian Universe Bond Index is down 0.81%. The only index that has had substantial growth is the NASDAQ. And if you dig deeper, you will realize that only a few stocks have driven almost all of its return (with Nvidia being the largest contributor).
Source: Data retrieved from ThomsonOne as of June 17, 2024
There is no doubt that some sectors of the market are expensive on a relative basis. However, if you look under the hood, you will realize that most of the market is actually reasonably priced. Most of the fear (and greed) is being generated from a handful of stocks involved with artificial intelligence which are trading at multiples that have not been seen since the tech boom in 2000. If these highflying stocks were to have a correction, it would no doubt affect the entire market. However, a correction might also allow some of that money to get spread out into other sectors. When money flows from a few large caps to many mid-caps, we call it an increase in market breadth. This would be very bullish for the market and help start the next leg of the current bull market.
As I mentioned in last week's note, interest rates are starting to fall, monetary policy is easing, and inflation is dropping. All of these are tailwinds for the market. It's times like these when a quote by Peter Lynch comes to mind, "Everyone has the brainpower to make money in stocks. Not everyone has the stomach." Hopefully, we can be the antacids for some of our clients!
I have also included a piece from our CIBC economics team entitled “Slowing population growth? Not so fast”
As always, if you have any questions, please feel free to give us a call at any time.
Have a great weekend.
Milan