Sentiment is falling among advisors and investors across most asset classes

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Advisors remained bullish on the Canadian market, with sentiment rising four percentage points from the prior quarter to 52%.

Energy stocks were a rare bright spot last quarter, with the S&P/TSX Capped Energy Index posting a modest return of 2.66%. Advisors slightly increased their optimism on the sector to 44% for the third quarter, while investor sentiment fell 26 percentage points to 41% bullish.

Commodities provided some inflation shelter in the first half of the year, Mark Noble, executive vice president of ETF strategy at Horizons, said in a statement.

“However, with fears of recession and slower development on the horizon, coupled with the glut of supply of some commodities now materializing, there appears to be a growing sense that our eyes were bigger than our stomachs when it comes to our appetite for commodity consumption,” Noble said.

Advisors and investors turned bearish on financial stocks after the S&P/TSX Capped Financials Index fell 12.90% in the second quarter.

As for US equities, advisors and investors remained divided on their outlook for the third quarter. The S&P 500 entered a bear market last month and posted its worst first half since 1970, falling 16.45% in the second quarter. The Nasdaq 100 fell almost 30% in the first six months.

Bullish sentiment on the S&P 500 fell to 37% for advisors from a 38% decline; investors were evenly split at 37% up and down.

Many investors and advisers were caught off guard by declines south of the border after tech stocks generated strong returns in recent years, Noble said in the release.

“But with most asset classes and international equities eroded over the past quarter, there is still a prevailing sentiment that the United States is still worth the exposure, especially if there is a chance that trends downside are reversing,” he said.

The gloomy sentiment showed in June ETF flows. Nearly $700 million was withdrawn from Canadian ETFs last month, the first negative month since before the pandemic and the largest drawdown since 2013.

Equity ETFs lost $2.2 billion in June, according to National Bank Financial. Fixed income ETFs were the exception, earning $2 billion, despite a historically poor start to the year for bonds.

The Horizons survey found that investors and advisors remained bearish on US Treasuries.

Despite Bitcoin’s price plummeting nearly 60% in Q2, investors remained slightly more bullish than bearish on the cryptoasset: 38% bullish (down 12 percentage points from last quarter) to 35% bearish . Advisors moved into bearish territory on Bitcoin.

ETF flows last month reflected declining sentiment, with crypto-asset ETFs seeing redemptions of $697 million.

Horizons said 894 investors and 209 advisers responded to its quarterly survey, which was conducted online from June 23 to July 1. Online surveys cannot be assigned a margin of error because they do not randomly sample the population.

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