(Bloomberg) – Once the Canadian stock market crashed into the bear market, it jumped even faster by 21% from its base. However, few are willing to call a rally by its technical definition – a bullish market.
In 10 trading days, the S & P / TSX Composite Index jumped from a March 23 low to enter the bullish zone, the fastest rebound since the index was created in 1977, according to data compiled by Bloomberg. It took 14 days to dive into the bear market because the Covid-19 pandemic increased until February and March.
But strategists called for caution with the index still 4,351 points, or 24%, from a February 20 record high. The surge in volatility also implies that investors should continue to expect large daily market movements – both up and down.
“When you go down so far, so fast, people say it’s not a bullish market until you get back to new highs,” Greg Taylor, chief investment officer at Purpose Investments, said by telephone. “I think people will be much more comfortable if we return to new heights but that is very far away, I don’t think we risk it in the near future.”
It’s more convenient to call this a market rally because they are waiting for the number of corona virus cases to plateau with governments around the world focusing on smoothing the infection curve. And while some countries have signaled that the level of the virus is slowing down, the economic blow from months of locking and closing borders has been devastating – Canadian consumer confidence has fallen to a record low when 2.5 million people apply for work insurance.
A large number of companies listed on the benchmarks have withdrawn their financial forecasts, not only for the first quarter but for the whole year, leaving analysts and investors in the dark about what to expect during the upcoming income season as non-essential businesses close and people stay at home to stem the spread of Covid-19.
“The bull market has the connotation that there is a strong trend behind it that it will be an ongoing rally,” Brooke Thackray, an analyst at Horizons ETFs Management (Canada) Inc. said over the telephone. “People are afraid to call it a bull market because that can only be a bear trap and not a bull market at all.”
The quarrel between Saudi Arabia and Russia over oil production and falling demand amid a virus outbreak has also taken its toll on the Canadian economy with the energy sector making up about 9% of the country’s output. Energy stocks represent 13% of the Canadian stock market and they are the worst performing this year. Tension might subside there as crude oil prices surged mainly due to speculation that the world’s largest producer might achieve some kind of ceasefire for a price war.
Read more: Affected by Twin Shocks, the Canadian Market Faces an alarming recovery
“This will be a big week for TSX despite our greater exposure to energy stocks and further visibility of OPEC and reduced production through their meeting on Thursday,” said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel in Calgary .
Cboe Volatility Index – “Getting a VIX under 30 will be a big step. It is very positive that he is back below 50 but there is still much to be done. “Around 45 now. 10-year bond yields -” If we can make it stable potentially returning above 0.75% or 1%, that would be a very good signal that the market is starting to work together on the bond side. And that will give more confidence in what equity is doing. “The T-note yielded 0.67% on Monday. Stability in banks -” You can’t have a bullish market without banks starting to rise higher. “Crude oil prices -” As long as oil can finally return to above $ 30, it’s not perfect but it will be a good positive to keep the rest of the market going. “West Texas Intermediate was last traded around $ 26 per barrel.
No matter what, the road to market recovery in Canada will be bumpy when provincial and federal leaders rush to issue stimulus packages to help the ailing sectors and unemployed and health officials try to slow down the rate of infection.
“It is important to remember that we have not yet come out of the forest, but the market seems to be taking an optimistic approach to the impact of the corona virus which is handled in a timely manner so we hope not to be disappointed,” Pelletier said. “This correction has happened so fast and is judged by today’s action that it has the potential to rebound quickly.”
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