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Equities

Elevated VIX Signals Caution Amid Q1 Earnings Season

Issue 8Week ending April 5, 20268 sources

S&P 5006,582.69-1.2%
S&P/TSX24,680.45-0.8%
Nasdaq21,879.18-1.8%
Russell 20002,445.67-2.1%
VIX24.54+3.2pts
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Week Ending April 5, 2026

Elevated VIX Signals Caution Amid Q1 Earnings Season

§ 01

Key takeaways

Sectors

Defensive rotation accelerated as utilities (+2.1%) and healthcare (+1.4%) outperformed amid earnings uncertainty, while financials (-3.2%) lagged on net interest margin concerns.

Style

Value outperformed growth by 180bps as elevated VIX (24.54) triggered quality rotation, with growth P/E premium at 15.2x vs 5Y average of 12.8x suggesting stretched valuations.

Hedging

VIX surge to elevated regime above 24 signals protection demand, with 3-month 5% OTM puts now costing 2.8% of notional — highest since November 2025.

§ 02

Executive summary

Equity markets retreated this week as VIX spiked to 24.54 (elevated regime), driven by Q1 earnings season jitters and geopolitical tensions. Defensive sectors led with utilities +2.1% and healthcare +1.4%, while growth-sensitive areas lagged with financials -3.2% and tech -1.8%. Value outperformed growth by 180bps as investors sought quality and lower valuations. Canadian banks underperformed on NIM compression fears, while elevated volatility prompted institutional calls for increased hedging allocation.

§ 03

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureConstructive

Sectors Defensive · Style Value · Hedging Overweight

Snapshot compiled Apr 3, 2026 · source dates vary

SectorsDefensive
StyleValue
HedgingOverweight

Inputs used

S&P 5006,582.69-1.2% 1W
TSX24,680.45-0.8% 1W
Nasdaq21,879.18-1.8% 1W
Russell 20002,445.67-2.1% 1W
VIX24.54+3.2 pts 1W
§ 04

Sectors

15 points

Cyclical

  • **Financials pressure ** Banks -3.2% WoW on NIM compression fears — RBC Capital sees Canadian banks facing 'headwinds from flattening yield curve' with 10Y-2Y spread at 52bps (RBC Economics, Apr 2026)
  • **Energy resilience ** XLE -0.8% despite Brent at $78; Scotiabank maintains Overweight on Canadian E&Ps at 12% FCF yield — 'defensive characteristics in volatile market' (Scotiabank Global Economics)
  • **Industrials caution ** Sector -1.4% as capex cycle concerns emerge; BMO downgrades to Market Weight citing 'elevated valuations at 18.5x forward P/E' (BMO Capital Markets)
  • **TSX cyclical lag ** Financials (33% of TSX) driving underperformance; TD Securities sees banks at 11.2x forward P/E — 'attractive but timing uncertain' (TD Economics)
  • **Positioning ** Underweight financials, neutral energy and industrials — cyclical momentum weakest since Q4 2025 per Morgan Stanley equity strategy

Defensive

  • **Utilities leadership ** XLU +2.1% as 10Y yield stable at 4.2%; Fidelity sees 'rate-sensitive defensives attractive at current yield spread of 180bps over 10Y'
  • **Healthcare momentum ** XLV +1.4% driven by biotech strength; Wellington Management upgrades to Overweight citing 'earnings visibility in uncertain environment'
  • **Consumer staples ** XLP +0.7% with defensive rotation; BlackRock maintains neutral view — 'fair value but margin pressure from input costs'
  • **REITs mixed ** Canadian REITs -0.3% despite defensive bid; National Bank sees 'interest rate sensitivity offsetting defensive appeal at current levels'
  • **Signal interpretation ** Clear risk-off rotation as defensive sectors capture 3 of top 4 weekly performers — strongest defensive leadership since March 2025

Technology

  • **Magnificent 7 decline ** FAANG -1.8% WoW with concentration risk emerging; Goldman Sachs notes 'top 7 stocks now 32% of S&P 500 market cap' (Goldman Sachs Research)
  • **AI narrative pause ** Nvidia -2.4% on valuation concerns; J.P. Morgan sees 'AI infrastructure spending peaking in H2 2026' creating uncertainty (JP Morgan Private Bank)
  • **Valuation stretch ** Tech forward P/E at 28.4x vs 5Y average of 24.1x; UBS warns of 'multiple compression risk in rising volatility environment'
  • **Earnings momentum ** Q1 tech earnings growth estimated at 18% YoY but decelerating from Q4's 24%; FactSet data shows estimate revisions turning negative
  • **Positioning shift ** Institutional tech allocation declining — Bank of America fund manager survey shows first underweight tech since 2022
§ 05

Style

10 points

Growth vs value

  • **Value outperformance ** Russell 1000 Value -0.4% vs Russell 1000 Growth -2.2% — 180bps weekly spread largest since January 2026
  • **Valuation gap ** Growth trading at 32.1x forward P/E vs Value at 16.9x — premium of 15.2x well above 5Y average of 12.8x per MSCI data
  • **Earnings differential ** Value cohort showing 8% EPS growth vs Growth at 15%, but Growth deceleration more pronounced — down from 28% in Q4 2025
  • **Canadian context ** TSX value bias (-0.8%) outperforming S&P growth exposure (-1.2%); RBC GAM sees 'Canadian value advantage in volatile markets'
  • **Factor rotation ** Institutions calling for value rotation — Bridgewater Associates notes 'growth valuations unsustainable in higher volatility regime'

Size & quality

  • **Small cap weakness ** Russell 2000 -2.1% vs Russell 1000 -1.1% — size premium negative 100bps as credit concerns mount
  • **Quality factor strength ** MSCI Quality Index outperformed by 90bps; AQR Capital notes 'quality premium expanding in elevated VIX environment'
  • **Small cap risk ** High-beta small caps most vulnerable with 68% earnings beat rate vs large cap 74% — FactSet earnings scorecard
  • **Canadian mid-caps ** S&P/TSX Completion -1.6% underperforming TSX; Mackenzie Investments sees 'size penalty in risk-off environment'
  • **Quality positioning ** Overweight quality factors (ROE >15%, debt/equity <0.5) — T. Rowe Price recommends 'quality tilt until volatility subsides'
§ 06

Hedging

10 points

Volatility

  • **VIX regime shift ** VIX at 24.54 moves into elevated territory (>20) — highest close since November 2025 crisis period
  • **Term structure ** VIX backwardation with M1 at 24.5 vs M2 at 22.1 — CBOE data signals acute near-term stress rather than structural fear
  • **Options positioning ** CBOE put/call ratio at 1.15 vs 0.85 average — highest defensive positioning since Q4 2025 volatility spike
  • **Protection cost ** 3-month 5% OTM S&P 500 puts now 2.8% of notional vs 1.6% last week — protection demand driving premium expansion
  • **Volatility outlook ** Deutsche Bank expects 'VIX to remain elevated through earnings season' with target range 22-26 through April

Tactical

  • **Cash allocation ** Raise cash to 8-12% from 5% baseline — Wells Fargo Investment Institute recommends 'increased liquidity during earnings volatility'
  • **Collar strategies ** Implement 5% OTM collars on concentrated positions; Barclays suggests '95/105 collars for 6-month protection'
  • **Cross-asset correlation ** Stock-bond correlation at 0.65 vs 0.45 average — reduced diversification benefit requires alternative hedging (State Street Research)
  • **Tail risk indicators ** Credit spreads widening with IG OAS at 125bps vs 105bps last week; MOVE index at 118 signals bond volatility spillover
  • **Rebalancing timing ** Await VIX below 20 to deploy cash; Invesco tactical team sees 'better entry points if volatility normalizes post-earnings'
§ 07

Institutional views

12 institutions

Institutional Perspectives

RBC Capital Markets

Lori Calvasina

neutral
S&P 500 Target: 6,400
Key Call: Defensive positioning until earnings clarity emerges, maintain underweight growth

Goldman Sachs

David Kostin

bullish
S&P 500 Target: 6,900
Key Call: Buying opportunity on earnings volatility, overweight quality growth

Morgan Stanley

Mike Wilson

bearish
S&P 500 Target: 6,200
Key Call: Earnings disappointments ahead, defensive sectors and cash preferred

TD Securities

Andrea Cicione

neutral
S&P 500 Target: 6,500
Key Call: TSX outperformance on value bias, neutral North American allocation

J.P. Morgan

Marko Kolanovic

bullish
S&P 500 Target: 6,800
Key Call: Volatility spike overdone, maintain cyclical overweight

Bank of America

Savita Subramanian

bearish
S&P 500 Target: 6,100
Key Call: Earnings recession risk rising, underweight equities vs bonds

BMO Capital Markets

Brian Belski

neutral
S&P 500 Target: 6,550
Key Call: Canadian banks attractive but timing uncertain, quality focus

Scotiabank

Hugo Ste-Marie

bullish
S&P 500 Target: 6,700
Key Call: Energy sector defensive characteristics, overweight Canadian E&Ps

BlackRock

Wei Li

neutral
S&P 500 Target: 6,450
Key Call: Tactical underweight risk assets, wait for volatility to subside

Vanguard

Roger Aliaga-Diaz

neutral
S&P 500 Target: 6,400
Key Call: Long-term constructive but near-term headwinds, balanced approach

Fidelity

Jurrien Timmer

bullish
S&P 500 Target: 6,750
Key Call: Volatility creates opportunity, overweight large cap quality

Wellington Management

Jim Shanahan

neutral
S&P 500 Target: 6,500
Key Call: Healthcare attractive in defensive rotation, sector overweight
§ 08

Portfolio implications

Portfolio Implications

Conservative

  • **Sector allocation:** Overweight utilities (12%) and healthcare (18%), underweight financials (8%) — defensive positioning for elevated volatility
  • **Quality emphasis:** Focus on dividend aristocrats and low-beta names; ROE >15% and debt/equity <0.5 screening criteria
  • **Hedge implementation:** 5% portfolio allocation to VIX calls or protective puts on equity positions
  • **Canadian weighting:** 35% TSX allocation emphasizing defensive sectors — utilities, healthcare, consumer staples focus

Balanced

  • **Core positioning:** Maintain sector neutral weights but tilt toward quality within each sector — earnings stability premium
  • **Style balance:** 55% growth / 45% value allocation vs 60/40 baseline — modest value tilt given valuation spreads
  • **Volatility management:** 3% cash raise and collar strategies on 20% of equity exposure during earnings season
  • **Geographic split:** 65% US / 35% Canada with currency hedging on 50% of USD exposure given elevated volatility

Growth

  • **Sector overweight:** Maintain tech (28%) and healthcare (16%) exposure but focus on quality growth names with pricing power
  • **Factor tilts:** Momentum and quality factors, avoid high-beta small cap exposure until volatility normalizes
  • **Tactical hedging:** Short-term defensive overlay via index puts, not sector rotation — maintain growth exposure
  • **International allocation:** 25% international developed markets for diversification, focus on quality European dividend payers
§ 09

Key dates

6 events

Key Dates Ahead

DateEventRelevance
April 7JPMorgan Chase earningsMajor bank earnings kickoff, NIM guidance crucial
April 9CPI inflation dataFed policy implications, rate-sensitive sector impact
April 11Bank of Canada rate decisionCanadian bank sector catalyst, TSX direction
April 14Major tech earnings weekMicrosoft, Google, Tesla — growth sector leadership test
April 16Russell rebalancing prepFactor and size rotation potential
April 18Options expirationLarge monthly expiry, potential volatility spike
§ 10

Sources

8 sources

Sources & References