Phases & Cycles Market Outlook – February 28, 2021
To answer this question we must look at the Secular Bull Market that started in 2009 (see charts on following page).
A “Secular Bull Market” (SBM) is a period of constantly rising prices. The two most recent Secular Bull Markets lasted 24 and 26 years (1942-1966 and 1974-2000). *N.B. the current SBM is only 12-years old!
A Secular Bill Market is followed by a shorter “Secular Bear Market”, which is a period of falling prices, as it occurred between 1966-1974 and 2000-2009.
Secular Bull Markets consist of numerous “Cycles”, and each Cycle consists of a period of rising prices (the Bullish Phase) and a period of weaker prices (the Corrective Phase). Each Bullish Phase and each Corrective Phase ends higher than the previous one, as an ongoing series of rising staircases (see A to B, B to C and C to D on following page). The current Cycle, which began at the end of 2018 (D) was interrupted by (what we designated as) a “Flash Crash”, but it is still in its Bullish Phase.
Although the lengths of the Cycles coincide in New York and Toronto, their heights are different, due to the alternating Sectors that dominate the markets during that given Cycle. For example, In Toronto the Banks have the largest influence during the first Cycle and the Energy Sector during the later Cycles. Another constant is that the first Cycle is usually the best performing one in both countries, due to the major oversold conditions that exist before the beginning of a new Secular Bull Market.
Outlook The current Cycle began at the end of 2018. It is over 2-years old and has to date appreciated 68% as measured by the S&P 500 Index (SPX - see following page). The percentage of stocks above their respective 30-week Moving Averages (courtesy of Investors Intelligence) is at 90.3% (it was at 4.5% at the bottom of the Flash Crash). Clearly, new investors are entering the market and pushing prices higher. Although the FAANG stocks took a rest during the last six months, others took over, such as Bed Bath & Beyond, PayPal, Abbott Laboratories, Chevron and Exxon, eBay, Deere and Honeywell, JPMorgan and Morgan Stanley, Marvell, Texas Instrument, Rio Tinto, Seagate, Unisys. Most of these, as well as the ones below, are on our List of Investment Ideas.
In Toronto the Canadian Banks slowed down at the beginning of the current Cycle, however they are coming alive again, alongside Linamar, Magna, CP and CNR, ATS Automation, Finning, CCL Industries, Stantec, Canfor, and Boralex, to mention a few. The S&P/TSX Index only managed to gain 35% to date (see second chart, following page), due to the lack of positive actions by the Oils. However, based on past experience, the latter Sector is about to participate and Toronto should outperform New York, as the year progresses.
Although the current “Bullish Phases” is over 2 years old, it has a lot of strength to continue. However, sooner or later it should give way to a short “Corrective Phase”, although probably not until mid-March.
PAC-20-198; MKT-501; February 18, 2021
Ron Meisels
Phases & Cycles Inc., 4000 Boul. De Maisonneuve West, Suite 2010, Montreal, QC, H3Z 1J9
Tel.: (514) 393-3653. E-mail: RonMeisels@phases-cycles.com
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This article was prepared by Phases & Cycles Inc. and does not necessarily reflect the opinion of iA Private Wealth Inc. The opinions expressed are based on an analysis and interpretation and do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors.