Market Insights: Market Commentary - Sentiment Too Negative?

Milestone Wealth Management Ltd. - Sep 25, 2020
Macroeconomic and market developments North American stock markets were down this week. The TSX Composite was down 0.83% and, in the US,, the Dow was down 1.75% and the S&P500 was down 0.63%. The Canadian dollar was also lower this week by just over

Macroeconomic and market developments 

  • North American stock markets were down this week. The TSX Composite was down 0.83% and, in the US,, the Dow was down 1.75% and the S&P500 was down 0.63%.
  • The Canadian dollar was also lower this week by just over a cent, finishing at 74.7 cents from 75.8 cents last Friday.
  • Oil prices dropped somewhat this week with US West Texas at approximately $40 this Friday, down from ~$41 last Friday.  It was a similar story in Canada, with Western Canadian Select also down about $1 to roughly $28 this week.
  • Gold prices had a big drop this week, going from $1,950 last Friday to roughly $1,866 this Friday, representing a 4.3% decline.
  • Sadly, last Friday night, Supreme Court Justice Ruth Bader Ginsburg passed away at the age of 87.  She became the second female appointed to the Supreme Court when she was appointed in 1993 by President Bill Clinton.  Politically, the vacancy enables President Donald Trump to nominate his third justice to swing the bench further to the right.
  • The big story in Canada this week was Prime Minister Justin Trudeau’s Throne Speech delivered by Governor General Julie Payette on Wednesday.  The four key foundations are: 1. fighting the pandemic and saving lives, 2. supporting people and businesses through the emergency “as long as it lasts, whatever it takes”, 3. “building back better” by creating jobs and strengthening the middle class and 4. standing up for Canadian values, including progress on reconciliation, gender equality, and systemic racism.
  • As part of the Throne Speech, the Liberal government proposed replacing the CERB (Canada Emergency Response Benefit) with a new program called the Canada Recovery Benefit.  The government also plans to extend the CEWS (Canada Emergency Wage Subsidy) until next summer and modify its CEBA small business loan program. Costing for new Liberal agenda remains a question, with analysts noting more details are not to be released until a fiscal update toward the end of November.
  • In local business news, TC Energy (formerly Transcanada) announced that Russ Girling will be retiring at the end of 2020 after 10 years as CEO.  He will be replaced by Francois Poirier who has been with the company since 2014.
  • Calgary-based Calfrac Well Services announced on Thursday that they are rejecting a takeover offer from billionaire investor Wilks Brothers LLC (which already owns 20% of the shares) of $20 million or $0.18/share. Calfrac also said that it was sweetening its own recapitalization plan to either $0.15/share in cash and two warrants or hold on to shares and receive the two warrants, which could be used to buy shares at $0.05/share over three years.
  • New single-family home sales in the Unites States increased 4.8% in August to a 1.011 million annual rate, easily beating the consensus expected 890,000. Sales are up 43.2% from a year ago. The months' supply of new homes (how long it would take to sell all the homes in inventory) fell to 3.3 months in August from 3.6 months in July. The decline was due to both the faster pace of sales and a decline in inventories of 9,000 units. The median price of new homes sold was $312,800 in August, down 4.3% from a year ago. The average price of new homes sold was $369,000, down 6.0% versus last year. 
  • Total confirmed global COVID-19 cases rose this week to just over 32.5 million, with the death toll approaching 1.0 million.  In Canada, cases have been rising, with total cases in Canada at 149,000, total active cases at 11,100 and total deaths at 9,250.  In Alberta, total cases are at 17,200, with 1,462 active cases.
  • For a deeper COVID dive, the US investment company First Trust has put out a US COVID-19 Tracker: COVID TRACKER

Charts of the Week

For the past couple of weeks, we have been discussing the disparity of returns in the U.S. when it comes to mega cap technology and the rest of the market, and growth versus value. This week we wanted to look at sentiment, as there has been some chatter in the media about too much optimism out there. The survey data, however, is certainly not backing that up. Specifically, two widely followed surveys - the AAII Investor Sentiment Survey and the Yale Crash Confidence Survey for individual investors.

The latest survey readings from the American Association of Individual Investors shows that 24.9% of investors are bullish. More importantly though, is that it has been below 30% for the better part of the last three months. This is well below the historical average of 38%. Also, the spread between the bullish percentage and the bearish percentage is currently at the very low end of the historical range (-21). This current streak of negative readings on the bull-bear spread of 31 weeks is a record, suggesting a significant amount of pessimism out there among investors. Bearish streaks of this nature in the past have typically been clustered near long-term lows in the stock market, not highs.

Looking at the Yale survey in the chart below, which comes from the Yale International Center for Finance and looks at both individual and institutional investors, the latest monthly reading just came out for August and it dipped to just 13.1 for individual investors. This survey gauges how worried investors are in the next six months about a stock market crash. This reading is bit strange in that a low reading means that a low number of investors are not worried. Therefore, the lower the reading, the higher the concern of a large stock market correction, and conversely, the higher the reading the higher the level of complacency. What we find quite astonishing is that the latest reading is even lower than the prior record low seen in April 2009, just after the Financial Crisis market lows had been made. At that time, however, the market had fallen 50% from its 2007 high, whereas now this record low reading comes as the S&P 500 has just made a new all-time high during a global pandemic.

Source: Bespoke Investment Group

This chart below inverts the Crash Confidence results so that higher readings would suggest higher concerns of a large market correction. You can see that the highest peaks in the blue line coincide with long-term market lows, not highs. This demonstrates that the market continues to “climb the wall of worry” that bullish investors like to see. If market participants are as concerned as they have ever been in at least 20 years, as this survey suggests, then from a contrarian perspective it is a very bullish signal on forward looking returns.


Source: Bespoke Investment Group

Sources:, Globe and Mail,,,, Huffington Post, Canaccord Genuity, Financial Post, Calgary Herald, Bespoke Investment Group, American Association of Individual Investors, Yale International Center for Finance