Ahead of the Fed rate decision, I thought I would share on Canadian Insider our take on the state of North American equities. Here is our analysis that we sent out to INK subscribers this morning in our weekly US market report.
Being bearish is now pretty much the consensus view among fund managers, at least according to a survey by the Bank of America Merrill Lynch. As reported in the media yesterday, global fund managers as a group have not been this bearish since the great financial crisis.
That may help explain the recent sprint higher by stocks as we approach two key policy events this month, the Fed rate decision later today and the Trump-Xi trade meeting around the G20 at the end of the month. We will have to see how long being bullish remains a contrarian strategy, but so far it has paid off this month.
Insider sentiment has been on the rise primarily due to contrarian behaviour as well. Our US Indicator has risen along with the market over the past week and now stands at 50%. The rise in sentiment to these levels on the back of a rising market would normally be impressive. However, in this case, broad sentiment is being led by insiders in the Energy and Healthcare sectors, two beaten down groups.
At this point, we still do not have a clear peak in our US Energy Indicator to signal a near-term bottom in stocks. However, we are probably close. A peak in our indicator implies peak insider buying which often happens near share price lows. In the case of Healthcare, our Pharmaceuticals industry indicator peaked at the end of May, and now the broad sector appears to be following. As with Energy, an indicator peak is not yet established, but a turnaround may be near.
Perhaps when the trade and Fed dust settles, global stocks will move higher on the back of coordinated central bank easing and a more conciliatory approach to trade by China and the US. If that is the case, we continue to see better opportunities in the Canadian market than the US. After years of impressive gains, American stocks now appear to be fairlyvalued on a broad basis according to our read of insider sentiment behaviour. In contrast, Canadian stocks have underperformed as commodity prices have stagnated and concerns about Canadian housing markets have grabbed the spotlight. Under a renewed assault on deflation by central banks, Canadian market fortunes could well change.
This post first appeared on INKResearch.com.