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May 3, 2021

Into The Year Without Any Fear

by Donald Dony
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Don DonyIn the beginning of my 35-year career in finance and investments (first as a broker and then as an analyst), one of our senior analysts at the bank where I worked said: “If you want to find out if the markets are near the top or the bottom, check how people feel about the markets.”

As a rookie broker in my late 20s, I thought that this “gem” of wisdom was closer to office gossip rather than real information that I could use for my clients.

How wrong I was.

Over the next three decades, I witness several blow-out peaks and depressing lows in the markets. During those extreme highs and lows, I remember many investor comments, both professional and retail, and how they aligned with what that senior analyst had said so many years ago.

That analyst had said that “market tops develop when everybody is bullish and market bottoms develop when everybody is bearish. And a normal bull market occurs when half the investors feel the stock market is going up and half believe that a substantial correction is coming.”

I have witnessed that investor connection to the markets repeatedly over the last 35 years and each time it has provided a valuable clue to the market’s near-term movements. At this junction, the opinion on the market going into 2021 appears very mixed. Good news. Some of our clients are deeply worried about the direction of the markets next year (overvalued, 11-year run, inflation rising, COVID-19 fallout, unemployment at record levels). Others see a different picture (accommodating Fed, incredibly low interest rates, declining unemployment numbers, COVID-19 vaccines and no price weakness in the markets (Chart 1).


This divided camp of opinions, plus our own analysis, suggests that the markets will advance higher in 2021.

The sectors in the benchmark S&P 500 are another welcoming sign for markets in 2021. The industry groups that are performing best over the last 90 days are a promising sight. Industrials, Financials, Base Metals, Consumer Discretionary and Communication Services are all outperforming the S&P 500 (Chart 2). The bottom four sectors are all safe-haven groups. The market is moving away from these “risk-off” groups and staying with “risk-on” sectors. The same action applies to fixed income. The market has been moving away from bonds (another safe-haven security) and going for growth (stocks).

The recent rise in performance from the Base Metals sector is another indication of how advanced the market cycle is. Base/Industrial Metals (e.g., copper, zinc, lead and nickel) normally start to perform well about halfway through a market cycle. This advance is like a road sign signalling there is more upside coming for the stock market (Chart 2).

Bottom line: The current bull market has advanced for over 11 years. Though this length of rise may seem excessive, when compared to past bull markets under similar economic conditions (1950 to 1970 and 1982 to 2000), it is conceivable that this bull market has considerably more upside potential.

Our models point to 4,135 for the S&P 500 and 19,000 for the TSX.


Donald W. Dony, FCSI, MFTA. Analyst, past instructor for the Canadian Securities Institute (CSI), editor for the,, 250-479-9463.