Market Outlook - June 2024

Growth continues to outperform value, and US stocks grind higher versus Canada, which has lagged on a relative basis. Under the backdrop of the first Bank of Canada rate cut the defensive yielding sectors like communication services, real estate and utilities should be performing much better than they are currently. Unfortunately, these are the worst performing sectors year-to-date and on a 12-month rolling basis offer the deepest value on the TSX. This suggests to us that the fear surrounding these areas of the market is overdone, and with the easing rate environment upon us we anticipate a turn around for these sectors later this year. In the U.S. investors have been comfortable chasing the momentum stocks, in particular, the mega-cap tech names, leaving most sectors underwhelmed. As a result, under-performing sectors in the U.S. like Healthcare offer an attractive opportunity on a short -term basis, as do other sectors that are currently rated market weight by many of the large Institution analysts. While earnings from these ‘market weight’ rated companies may require some attention, recent revisions from analysts suggest things are improving with valuations already at very attractive levels. Whether we’re ahead of the curve or not remains to be seen, but at some point, a ‘catch up’ trade will occur in the form of a sector rotation, which will give a much-needed lift to both under-performing, and ‘under valued’ market weight rated sectors that are currently trading at very attractive valuations. 

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