In February, the markets experienced favorable conditions, with the Nasdaq gaining 6.11%, the Dow Jones rising by 4.55%, the S&P increasing by 5.18%, and the TSX gaining 1.63% for the month. The year-to-date performance is promising.

As detailed in our earlier investment outlooks, our analysis of market indicators and stock market activity confirms that we are in a new bull market. I would like to highlight the following:

• The Dow, S&P 500, Nasdaq, and TSX have all reached record highs. For the Nasdaq, we recently witnessed its first closing high since November 19, 2021. This span of 569 sessions marked the longest since the 3,801 trading days from March 2000 to April 2015 before reaching a new high.
• Our analysis indicates that the markets are becoming overbought, and we anticipate a short-term pullback. Bullish sentiment has reached very high levels, while volatility readings remain low. Various indicators we monitor suggest short-term overbought conditions. While overbought readings can persist for some time, a correction will eventually occur to maintain balance.
• We anticipate the markets to continue rising throughout the year, with stronger gains expected in the second half. This year, being a presidential election year, has historically been positive for the markets.
• Any rate cuts in the second half of the year will further boost the markets. The only caveat is that rate cuts are not expected to be driven by a significant recession, which we do not foresee in 2024.
• A relatively small group of stocks accounts for a significant portion of the market gains. We anticipate a broadening of the markets that will sustain further advances. This trend is beginning to show signs, as reflected in the S&P Mid-cap 400 index gaining traction and appearing to be at the start of a bull run.
• The areas of AI and crypto show signs of overbought conditions and a pullback is anticipated in these sectors. Wall Street is increasingly confident in a scenario reminiscent of the roaring ’20s, with generative AI sparking a new productivity boom, promising fast growth, low inflation, and a prosperous era for investors. After a long productivity drought, the U.S. experienced a revival in 2023. Federal Reserve Chair Powell attributes that less to transformative technology and more to mundane factors, such as healing supply chains and reduced labor-force turnover.  We remain vigilant in monitoring these areas and keeping a close eye on the over-exuberance of market participants in these sectors.

In summary, we maintain a constructive outlook on the market. Our analysis, dating back to the beginning of 2023, which outlined the case for the market turning towards an upside orientation in the fall of 2023, has come to pass. We remain bullish on the market, acknowledging short-term overbought conditions that are likely to result in a temporary pullback. We anticipate that 2024 will be a very positive year for the U.S. markets, albeit less so for the Canadian markets.