Market Insights: Bull & Bear Tug of War

Milestone Wealth Management Ltd. - Dec 03, 2022

Macroeconomic and Market Developments:

  • North American markets were positive this week. In Canada, the S&P/TSX Composite Index increased by 0.50%. In the U.S., the Dow Jones Industrial Average rose by 0.24% and the S&P 500 Index grew by 1.13%.
  • The Canadian dollar decreased slightly this week, closing at 74.25 cents vs 74.74 cents last Friday.
  • Oil prices rallied this week. U.S. West Texas crude closed at US$80.22 vs US$76.28 last Friday, and the Western Canadian Select price closed at US$51.66 vs US$50.75 last Friday.
  • The gold price also climbed this week, closing at US$1,797 vs US$1,754 last week.
  • Bank Earnings:
    • CIBC (CM) posted earnings that missed analysts’ estimates due to CIBC’s lending margins expanding more slowly compared to some peers. However, CIBC has elected to raise the annual dividend by 2.4%.
    • Bank of Montreal (BMO) also did not fare well in the fiscal fourth quarter as a slowdown in capital markets impacted overall revenue. Similarly, BMO announced a dividend raise of 2.9%.
    • National Bank (NA) reported lower-than-expected earnings as its capital-markets division was also impacted by the slowdown. National Bank announced a dividend increase of 5.4%.
    • TD Bank’s (TD) earnings beat consensus forecasts benefiting from strong performances by its largest segments and a strong U.S. dollar. TD announced a dividend increase of 7.9%.
    • Bank of Nova Scotia (BNS) posted earnings growth in its international banking division, though overall results were weighed down by approx. $500 million in one-time charges. BNS did not announce a change to its current dividend.
    • Royal Bank of Canada (RY) beat earnings estimates helped by its retail banking division. RBC also raised its dividend by 3.1%.
  • In addition to the earnings announcement, RBC revealed the intention to purchase HSBC Canada for an all-cash deal of $13.5 billion. The deal is expected to be completed by late 2023 pending regulatory approval. The purchase will give RBC an additional 130 branches and a significant commercial-banking franchise with heavy focus on international banking.
  • Jerome Powell signaled earlier this week that the US Fed will slow the pace of interest-rate increases next month but stressed borrowing costs will need to keep rising and remain restrictive for longer than originally expected. The US Jobs announcement may impact this, however.
  • US job growth was much better than expected in November despite the Federal Reserve’s aggressive efforts to slow the labor market and tackle inflation. Nonfarm payrolls increased 263,000 for the month while the unemployment rate was 3.7%, the Labor Department reported Friday.
  • Canada added 10,100 jobs vs. an estimate of 10,000. The Canadian Job Market remains strong despite signs of an economic slowdown. Canada's unemployment was 5.1 per cent last month, down from 5.2 per cent in October.
  • PCE (Personal Consumption Expenditures) deflator is the preferred inflation gauge used by the U.S. Fed. The growth rate was down to 6% for October from 6.3% in the previous month. This marks the lowest growth rate so far this year. Last time it was below 6% was Dec. 2021. Core PCE (excluding food and energy) for October was at 5% vs. 5.2% last month.
  • Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer titled Market and Economic Release Reinforce Gameplan: DWYER VLOG


Weekly Diversion:

Check out this video: Safest Kid in the World?

Chart of the Week:

Although markets have had a more positive tilt of late, it has certainly been a tug of war between bulls and bears in the second half of this year so far. In fact, the S&P 500 and S&P/TSX Composite are almost at the exact same level they were at six months ago, even though the peak and trough spread over that period has been over 20% for the S&P 500. Through all this, we have seen volatility spike in ebbs and flows. There is certainly good reason for these ups and downs. Here is an abbreviated summary of some of these positives and negatives at play right now.


  • Easier financial conditions, as Goldman Sachs U.S. Financial Conditions Index eased by 18.6bps to 99.90 over the last week. More support for FOMO via inflows, with U.S. inflows now running above $200B year-to-date.
  • Seasonality, another positive with the Santa rally typically kicking in over the latter few weeks of December. Also notable is that we are now in the third year of the four-year U.S. presidential cycle, normally the strongest; especially the first six months of the third year.
  • Technicals, a potential bright spot with Bank of America noting 10-day moving average of new 52-week highs minus new 52-week lows, which measures market breadth, is on bullish breakout watch across the U.S. indices. Multiple firms continue to highlight potential support from depressed commodity trading advisor (CTA) and risk parity positioning. In addition, the next couple of weeks represents the strongest corporate buyback-period of the year.
  • Consumer resilience flagged as one of the big takeaways from recent flurry of Q3 earnings out of retail.
  • Labor market strength on display again in the latest November employment report and while this may be a frustration for the U.S. Federal Reserve, it does fit with a soft-landing scenario.
  • China putting heightened emphasis on growth with tweaks to Zero-Covid and measures to support property market.


  • Sticky inflation pressure (shelter lag, economic normalization, de-globalization/geopolitics) plays into the higher terminal rate risk and higher-for-longer funds rate narrative.
  • Extreme yield curve inversion driving potential monetary policy mistakes and recession concern, both of which are finding support from a heightened focus on a sharp decline in excess liquidity following a surge in late 2020 and early 2021 from pandemic support dynamics.
  • Earnings risk increasingly flagged as the big headwind for sentiment in 2023, with some strategists suggesting the bottom-up consensus needs to come down by another 10-15%. Weaker earnings trends expected to drive a slowdown in corporate buyback growth following expected $1.25B record purchases this year.
  • With recent upside move, U.S. equity valuations are not cheap despite outsized multiple contraction, and multiple firms continue to flag upside risk to the equity risk premium, or ERP (Credit Suisse recently said ERP at 4.3% nearly 110bps below post-1991 average).
  • China reopening still seen as more of a 2Q/23 event and not expected to come in a straight line.

Noteworthy this week is that on Wednesday the S&P 500 finally closed above its 200-day moving average (DMA). Market participants tend to use the 200-DMA as the line in the sand between a positive or negative longer-term trend. In other words, good things tend to happen when a market is above its 200-DMA and vice versa when beneath it. Wednesday is the first time in over 7 months that it has accomplished this; a very long stretch. If you look at the 13 prior times this has occurred since 1950, closing above the 200-DMA after being below this trendline for at least 6 months, there was only one instance where S&P 500 turned back to a new low. That is a strong 12/13 (92.3%) success rate for a longer-term indicator. Over these 13 occurrences, the S&P 500 averaged an 18.8% return over the following 12-month periods, - well above the average for all other periods. The following chart of the S&P 500 (log scale) illustrates these points in time with green diamonds. As you can see, the only false signal was back in 2002, when the market retreated to hit one newer low. All the other points in time proved to be at the beginning of a new long-term uptrend. The most recent signal in 2009 was an incredible entry point, with the beginning of one of the strongest bull markets in history. Let’s hope the current positive 200-day MA is more like the last signal.

Source: Carson Investment Research, @ryandetrick, FactSet 11/30/2022 (1950-current)

One more positive of late is that the S&P 500 Index just had two consecutive months of 5%+ returns. This is just the 14th occurrence since 1950. In the previous 13 times this has happened, the market has been higher every time and up an average 22.2% over the following 12 months, which is more than double all other periods. Based on historical precedence, this indicates that this type of persistence isn’t normally the sign of a bear market rally, but more likely the start of a new bull market. Again, with any historical data, it is not necessarily an indicator of future performance.

Source: Carson Investment Research, @ryandetrick, FactSet 11/30/2022 (1950-current)

DISCLAIMER: Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges.

Sources:, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust, Carson Investment Research, FactSet