Stock rally will continue in Q4: survey

Global stock markets have rallied, and have boosted the confidence of Canadian advisors, says the Q4 Advisor Sentiment Survey.

They’re more bullish about stocks than they were in Q3 2012, with sentiment about the S&P/TSX 60 Index having increased from 54% last quarter to 68%.

A similar uptick was observed with the S&P 500 Index, after it returned 5.8% last quarter. More than half of advisors (63%) are optimistic about the benchmark U.S. index.

Even certain stock sub-sectors received strong votes of confidence, such as the S&P/TSX Capped Financial Index—which saw bullish sentiment rise 13% from 40% in Q3 to 53% in Q4.

Gold bugs and investors were also happier this quarter, with their sentiment increasing by 16% after the S&P/TSX Global Gold Stock Index delivered a 14.8% return in Q3.

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Only the MSCI Emerging Markets Index saw a decline in support. It generated a 7% return in Q3, but investors still had a more negative outlook on its future performance.

“The vast majority of Canadian advisors expect the rally in North American stocks we saw in the third quarter to continue through until the end of the year,” says Howard Atkinson, CEO of Horizons Exchange Traded Funds. “The exception being emerging market stocks which, despite strong returns last quarter, Canadian advisors clearly expect to underperform North American stocks.”

Read: Economic lessons from emerging markets

The bullish sentiment on stocks paled in comparison to the glimmer coming from precious metals. High levels of confidence were seen with gold and silver bullion where both were at 69%. Gold bullion delivered a 10.9% return in Q3, while Silver bullion delivered a substantial 25.7% return.

“The announcement last quarter by the U.S. Federal Reserve to engage in another round of quantitative easing bolstered expectations that precious metals will rise as the Fed prints more money,” says Atkinson.

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Natural gas actually moved into majority territory, with optimism increasing from 48% in Q3 to 55% in Q4. Similarly, sentiment on crude oil also increased from 55% to 57%, after delivering an 8.5% return in Q3.

The survey energy stocks, however, dropped slightly from 58% in Q3 to 56%.

“Energy commodity prices keep ticking along upward, and so too do advisors’ sentiment on natural gas and crude oil,” says Atkinson. “The majority of advisors are now bullish on natural gas , which we haven’t seen for a long time” due to prior poor performance.

Read: Vik’s Picks: Energy stocks powered by global demand

More advisors (39%) now have a neutral outlook for the Canadian dollar.

“As the loonie trades at or near par, advisors have tended to be neutral on its direction,” says Atkinson. “There’s been a slight shift in sentiment on the Australian dollar as well.”

He adds, “The loonie and the Aussie dollar historically move in tandem, but more advisors are expressing a view that this relationship is changing. A slight edge is going to the Aussie dollar, which currently offers higher interest rates on deposits and money markets.”

Read: Secondary currencies can reap returns

Advisors accurately predicted the direction of 14 out of the 16 asset classes surveyed last quarter, which is in line with their historical trend of making accurate predictions.