Rates hold but market bullishness rises 

• The Bank of Canada held its rate at 5%, as expected. The European Central Bank also stayed steady.
• Investor optimism surged, pushing bullish sentiment to new highs last seen in 2021.
• China aims for 5% growth, with focus on debt reduction and real estate stabilization.

The Bank of Canada (BoC) opted to keep its overnight interest rate at 5%. Although we expect a rate cut in the near future, recent gross domestic product (GDP) figures and job market data suggest the Canadian economy is still holding up enough in the eyes of the BoC. This data helped the economy steer clear of a technical recession and supported the BoC's decision to maintain the current rate, but under the hood there is evidence that the Canadian consumer is struggling.

The current situation makes a strong case for a reduction in interest rates, and the sooner the better. But the BoC is choosing to be conservative and is struggling with core inflation levels. It’s also likely waiting to see what steps the U.S. Federal Reserve will take. Even though rates are on hold for now, the probability is growing that the BoC will move to loosen monetary policy by mid-year. The European Central Bank (ECB) followed the BoC, with ECB President Christine Lagarde acknowledging the slowdown in the pace of inflation but uncertainty as to where it settles out at. She said, “We’ll know a little more in April and a lot more in June.”

This past week, enthusiasm in the stock market noticeably intensified. According to Investors Intelligence, bullish investor numbers climbed to their highest since the summer of 2021. The American Association of Individual Investors (AAII) recorded a notable rise in optimistic sentiment, increasing by 5.2 percentage points to 51.7%. This figure is just below the peak optimism observed in April 2021, during a stock market frenzy. Moreover, the CNN Fear and Greed Index has again entered “extreme greed” territory. Given the current wave of excitement, it's essential to maintain a level head, as the "bull space" is becoming increasingly crowded.

Nvidia’s upward trajectory continued, stirring up the market with its incredible, ongoing post-earnings rally. This surge in value has elevated Nvidia to a level where it's worth more than AT&T, Boeing, Coca-Cola, Disney, FedEx, General Motors, IBM, McDonald's, Nike, Starbucks, UPS and Walmart combined. Despite its gains, Nvidia is trading at a forward price-to-earnings (P/E) ratio in line with other tech giants. However, many noted that the same could be said about Cisco in the early 2000s, which provided a cautionary tale for overly enthusiastic investors. Still, this rise is helping sentiment and showing how strong the appetite still is for high-growth stocks.

This week was the Chinese Congress, where the country stated its strategy and goals. China is aiming for 5% economic growth in 2024, with a strategic plan to enhance its development model while simultaneously reducing debt. The country is focused on addressing industrial overproduction by minimizing unnecessary construction projects and effectively managing the aftermath of a significant real estate downturn. In the property sector, efforts are under way to stabilize the market by facilitating the transition of troubled real estate firms to more stable ownership, alongside attracting foreign investment.

Listen to this week’s podcast for further insights.