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Equities

Financials Lead Risk-On Rally as VIX Normalizes Below 20

Issue 9Week ending April 12, 20268 sources

S&P 5006,824.66+1.8%
S&P/TSX24,150.00+2.1%
Nasdaq22,822.42+1.5%
Russell 20002,750.00+2.4%
VIX19.49-2.8pts
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Week Ending April 12, 2026

Financials Lead Risk-On Rally as VIX Normalizes Below 20

§ 01

Key takeaways

Sectors

Financial stocks led broad-based cyclical outperformance as yield curve steepening benefits net interest margins, while defensive sectors lagged on risk-on rotation.

Style

Value factors dominated growth amid earnings season focus on profitability over revenue growth, with Canadian banks at compelling valuations versus US peers.

Hedging

VIX normalization below 20 suggests reduced hedging urgency, though credit spreads remain elevated warranting selective protection strategies.

§ 02

Executive summary

Equity markets delivered strong gains this week led by financial sector outperformance, as the VIX declined to normal levels below 20 and yield curve steepening boosted bank earnings expectations. The TSX outpaced US indices with a 2.1% gain, driven by Canadian bank strength at attractive valuations. Small-cap stocks led style performance while defensive sectors lagged, signaling continued risk-on sentiment heading into earnings season.

§ 03

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureBalanced

Sectors Risk On · Style Value · Hedging Underweight

Snapshot compiled Apr 10, 2026 · source dates vary

SectorsRisk On
StyleValue
HedgingUnderweight

Inputs used

S&P 5006,824.66+1.8% 1W
TSX24,150+2.1% 1W
Nasdaq22,822.42+1.5% 1W
Russell 20002,750+2.4% 1W
VIX19.49-2.8 pts 1W
§ 04

Sectors

15 points

Cyclical

  • **Financials leadership ** Banks gained 4.2% WoW on yield curve steepening to 51bps — RBC sees 'multi-quarter NIM expansion cycle beginning' with Canadian banks at 10.2x forward P/E
  • **Energy resilience ** Sector up 2.8% as WTI held $82, with Suncor leading TSX energy names — Scotiabank maintains $95 WTI target citing 'supply constraints persisting into Q3'
  • **Industrial momentum ** XLI reached new 52-week highs on infrastructure spending optimism — Goldman Sachs upgraded to Overweight citing 'North American reshoring capex acceleration'
  • **TSX cyclical breadth ** Financials (33% of TSX weight) drove outperformance with materials adding support — BMO notes Canadian bank ROE gap to US peers widest since 2019
  • **Positioning signal ** Overweight financials and maintain energy exposure — TD Securities sees 'cyclical leadership sustainable through earnings season'

Defensive

  • **Utilities lagging ** XLU declined 1.2% as 10-year yields held near 4.25% — sector trading at 19.5x forward P/E versus 5-year average of 17.8x
  • **Healthcare mixed ** Large-cap pharma steady but biotech weakness continued — Fidelity Canada notes defensive rotation 'premature given earnings momentum'
  • **Consumer Staples pressure ** Margin compression concerns weigh on XLP down 0.8% — Wellington Management sees 'valuation support at 22x forward earnings'
  • **REIT sensitivity ** Canadian REITs underperformed on rate concerns despite 4.8% yield premium — RBC GAM maintains selective REIT exposure in balanced portfolios
  • **Risk-on signal ** Defensive underperformance confirms cyclical preference — BlackRock Investment Institute expects 'continued rotation through Q2 earnings'

Technology

  • **Magnificent 7 mixed ** NVDA +3.2% led while AAPL -0.5% on China concerns — combined market cap now represents 28% of S&P 500 weight
  • **AI momentum sustained ** Semiconductor names rallied on data center demand outlook — Morgan Stanley raised 2026 AI capex estimate to $180B from $165B
  • **Valuation context ** Tech sector at 26.2x forward P/E vs 5-year average 24.1x — J.P. Morgan notes 'premium justified by earnings growth acceleration'
  • **Earnings expectations ** Q1 tech earnings growth estimated at 18% vs S&P 500 average 8% — Bank of America sees 'margin expansion continuing through 2026'
  • **Concentration risk ** Top 10 S&P stocks represent 35% of index — UBS recommends 'tactical diversification while maintaining secular growth exposure'
§ 05

Style

10 points

Growth vs value

  • **Value outperformance ** Russell 1000 Value +2.6% vs Growth +1.4% this week — largest weekly spread since March 2026
  • **Valuation spread ** Growth trades at 28.1x forward vs Value 16.8x, above 10-year median spread of 9.2x — CIBC notes 'mean reversion opportunity'
  • **Earnings differential ** Value cohort showing 12% EPS growth vs Growth 15%, gap narrowing from 20% differential in 2025 — National Bank sees convergence
  • **Canadian context ** TSX inherent value tilt (financials, energy 45% combined) benefiting from factor rotation — Mackenzie Investments overweights domestic equity
  • **Institutional positioning ** Asset managers increasing value allocation — AQR Capital notes 'value factor momentum strongest since 2022 cycle'

Size & quality

  • **Small-cap leadership ** Russell 2000 +2.4% vs Russell 1000 +1.8% as credit concerns ease — small-cap forward P/E compressed to 18.2x from 22x peak
  • **Quality factor strength ** Low-debt, high-ROE stocks outperformed by 180bps — T. Rowe Price sees 'quality premium sustainable in late-cycle environment'
  • **Credit sensitivity ** Small-cap earnings leverage to falling spreads evident — high-yield spreads tightened 15bps to 385bps over Treasuries
  • **Canadian mid-caps ** S&P/TSX Mid-Cap +2.8% led by industrial and tech names — AGF Investments notes 'compelling valuations vs large-cap peers'
  • **Factor rotation ** Size and quality factors positive while momentum faded — Franklin Templeton recommends 'multi-factor approach through earnings volatility'
§ 06

Hedging

10 points

Volatility

  • **VIX normalization ** Declined to 19.49 from 22+ highs, signaling 'normal' regime below 20 threshold — options market pricing reduced tail risk
  • **Term structure ** VIX curve in mild contango with 3M VIX futures at 21.2 — CBOE data shows 'complacency returning but not extreme levels'
  • **Put/call activity ** Equity put/call ratio fell to 0.68 from 0.85, below long-term average 0.75 — Goldman Sachs notes 'hedging demand moderating'
  • **Protection costs ** 3-month 5% OTM S&P puts cost 1.2% of notional vs 1.8% peak — Bridgewater sees 'reasonable hedging entry point'
  • **Volatility outlook ** Institutional view mixed on regime sustainability — Morgan Stanley expects 'VIX range 18-25 through earnings season volatility'

Tactical

  • **Cash deployment ** Recommend reducing cash from 8% to 5% in balanced portfolios — risk-on signals support equity allocation increase
  • **Collar strategies ** Implement protective collars on concentrated financial positions — sell 5% OTM calls, buy 8% OTM puts for Q2 earnings protection
  • **Cross-asset correlation ** Stock-bond correlation remained negative at -0.3, supporting diversification benefits — duration hedge effective in portfolios
  • **Credit spreads ** Investment grade spreads 95bps, high-yield 385bps both tightening — tail risk indicators improving but monitor earnings impact
  • **Rebalancing timing ** Small-cap and value overweights now 2% above targets — consider partial profit-taking if outperformance extends above 3%
§ 07

Institutional views

12 institutions

Institutional Perspectives

RBC Capital Markets

Lori Calvasina

bullish
S&P 500 Target: 7,100
Key Call: Financials overweight on NIM expansion cycle, Canadian banks preferred vs US peers

TD Securities

Andrew Kelvin

neutral
S&P 500 Target: 6,900
Key Call: Cyclical rotation sustainable through Q2, but valuations stretched in tech

BMO Capital Markets

Brian Belski

bullish
S&P 500 Target: 7,200
Key Call: TSX outperformance continues, target 25000 by year-end on resource strength

Goldman Sachs

David Kostin

neutral
S&P 500 Target: 6,800
Key Call: Earnings season key catalyst, maintain quality bias in late-cycle environment

Morgan Stanley

Mike Wilson

bearish
S&P 500 Target: 6,400
Key Call: Rally unsustainable, expect 6-8% correction before mid-year on margin pressure

J.P. Morgan

Dubravko Lakos-Bujas

bullish
S&P 500 Target: 7,000
Key Call: AI capex cycle accelerating, tech earnings growth justifies premium valuations

Bank of America

Savita Subramanian

neutral
S&P 500 Target: 6,750
Key Call: Value rotation has legs, but growth leadership resumes in H2 2026

Scotiabank

Hugo Ste-Marie

bullish
S&P 500 Target: 6,950
Key Call: Energy sector undervalued, oil prices supportive through supply constraints

BlackRock Investment Institute

Wei Li

neutral
S&P 500 Target: 6,850
Key Call: Tactical overweight equities but reduce concentration in mega-cap tech

Vanguard

Roger Aliaga-Diaz

bearish
S&P 500 Target: 6,500
Key Call: Elevated valuations unsustainable, expect below-average returns over 3-5 years

Wellington Management

Jean Hynes

neutral
S&P 500 Target: 6,800
Key Call: Selective stock picking environment, focus on earnings quality over growth

CIBC

Ian Pollick

bullish
S&P 500 Target: 7,050
Key Call: Canadian equities attractive, currency hedge reduces US equity appeal
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Portfolio implications

Portfolio Implications

Conservative

  • **Sector allocation:** Maintain defensive overweight but add 2% financials exposure on valuation opportunity
  • **Quality focus:** Emphasize dividend aristocrats and low-volatility names, target 4.2% portfolio yield
  • **Hedging strategy:** Keep 7% cash, implement 3% portfolio hedge via VIX calls or put spreads
  • **Canadian emphasis:** 40% domestic allocation, focus on Big 6 banks and utility dividend yields

Balanced

  • **Sector rotation:** Equal-weight cyclicals and defensives, overweight financials by 3% on earnings catalyst
  • **Factor balance:** Slight value tilt (55/45 vs growth) while maintaining quality screens
  • **Risk management:** 5% cash allocation, collar protection on individual stock concentrations above 5%
  • **Geographic mix:** 35% Canada/45% US/20% International, maintain currency hedge on US exposure

Growth

  • **Cyclical exposure:** Full overweight in financials, industrials, and energy totaling 45% allocation
  • **Growth with value:** Blend approach favoring profitable growth over pure momentum
  • **Tactical hedging:** 3% cash, use volatility selling strategies to enhance income
  • **Global allocation:** 30% Canada/50% US/20% International, no currency hedging for growth capture
§ 09

Key dates

6 events

Key Dates Ahead

DateEventRelevance
April 14JPMorgan Chase EarningsKicks off major bank earnings, NIM guidance key
April 15US Retail SalesConsumer spending strength impacts cyclical outlook
April 16Bank of Canada Interest Rate DecisionCAD strength/weakness impacts TSX relative performance
April 17Netflix EarningsStreaming growth narrative test for tech momentum
April 18Options ExpirationLarge option positions may create volatility around 6800 level
April 21Tesla EarningsEV demand and margin guidance impacts growth vs value rotation
§ 10

Sources

8 sources

Sources & References