Sid Mokhtari, chief market technician at CIBC Capital Markets.Supplied
While major North American indexes have been soaring to new highs, valuations have become cheaper. We are seeing multiple compression due to the remarkable strength in earnings growth.
But with the earnings season coming to a close, can markets continue to rally or are we due for a pause or pullback?
On May 9, The Globe and Mail spoke with CIBC’s chief market technician, Sid Mokhtari, to get his view on where he believes markets may be headed in the near-term.
In part one of a two-part interview, featured below, Mr. Mokhtari provides his market outlook and discusses investments that are ranking highly in his models. In part two, to be published later this week, he answers readers’ questions, including a discussion on potential buying opportunities for income investors as well as his thoughts on a ‘Magnificent 7’ stock that he believes may be poised to breakout.
Mr. Mokhtari has a successful track record of identifying stocks with strong technical and quantitative characteristics that may lead to portfolio outperformance. He publishes a monthly report with his top 10 stock ideas (his picks for May can be found here.)
In April, his portfolio of top picks rallied 8.53 per cent, adding 4.88 per cent of alpha relative to the S&P/TSX Composite Index.
Importantly, his disciplined process has delivered strong long-term returns. His stock selections have outperformed the S&P/TSX Composite Index for the past four calendar years. In 2025, his portfolio of stock selections rallied 51.3 per cent, compared to a 28.3 per cent price return for the S&P/TSX Composite Index. His stock selections also outperformed the TSX in 2024, 2023 and 2022 by 5.8 percentage points, 6.3 percentage points and 2.7 percentage points, respectively.
For May, his diversified basket of stock selections includes nine new stocks and one carryover from the previous month. Once again, the portfolio has a significant exposure to the energy sector where he holds three stocks: Cenovus Energy Inc. (CVE-T), Keyera Corp. (KEY-T) as well as Whitecap Resources Inc. (WCP-T). The portfolio holds three financial stocks: Bank of Montreal (BMO-T), Manulife Financial Corp. (MFC-T) and Power Corp of Canada (POW-T). In industrials, Magna International Inc. (MG-T) made the list. In consumer discretionary, Restaurant Brands International Inc. (QSR-T), the sole carryover, was selected. In materials, Methanex Corp. (MX-T) was added. Lastly, in the real estate sector, Granite REIT (GRT-UN-T) was selected.
Should investors “sell in May and go away” or is this time different given the strong earnings season? The S&P 500, for instance, has seen its year-over-year earnings growth expectations for 2026 jump from the mid-teens to over 20 per cent.
Earnings results are really driving the bus in the U.S. as well as in Canada.
Prior to 2008, the global financial crisis time frame, I think you could make the case for “sell in May and go away”, but not over the past 10 years plus.
I think the narrative in the past 10 plus years has been more about sell in August and go away. The market has generally been better buoyed between May through to July and August.
So where are major indexes headed?
Fundamentals are driving the market. It’s pegged strongly by earnings revisions in the U.S. Revenues and margins are very good. Profitability and ROEs that companies are reporting are also very good.
For the TSX index, 35,000 to as high as 37,000 are levels that I thought we could reach but I was not expecting it to happen in such a short period. I was more of the view of it occurring in the fourth quarter. It’s very difficult for me to assume that we can easily get up there without a period of consolidation in the next six months.
For the S&P 500, I have to say the same thing. I had a view of about 7,300, 7,350 on the SPX, and it’s already surpassed my technical objectives. It comes down to whether or not we’re going to see a continuation within the semis, or are we’re going to see consolidation from the semis and rotation into other parts of the market because there’s very narrow leadership in the U.S., which is tied to semis and AI.
Does the narrow leadership concern you?
We have seen a very strong rally off the March 30th lows on a very depressed set of volume readings.
I don’t want to say that’s a concern, but it’s certainly something to be mindful of - that we don’t have volume conviction behind this wave. When you see a strong wave, it’s best to be confirmed with volume to give it a vote of confidence.
From a breadth perspective, we’re not getting new highs in the market from a broad perspective. We’re getting it from technology, on the AI side and AI-related stocks, and semiconductors. We have not yet seen it coming from financials. We’re not yet seeing it coming from industrials. We’re not yet seeing it coming from consumer stocks. It’s been a bifurcated trending environment in both the U.S. and Canada, but particularly in the U.S.
This market went exactly to where leadership was before the correction in March, and it’s just carrying it forward again. This theme of AI, this theme of technology and semiconductors and the need for chips, they are still the dominant force of the market from an alpha perspective. Earnings came through and we saw that there is a fundamental case to be made in favour of semiconductors and AI-related stocks.
Given the strong fundamentals can the tech rally be sustained?
The fact that we have seen new highs, irrespective of the fact that we don’t have volume, there is the case to be made that dips will be bought given how much strength we’ve seen in the market going right back to the previous leaders. The strength of the leadership within technology is very much at play - that is the source of alpha. That’s where investors are going to be investing, and I believe that’s where we’re probably going to see every dip probably met with better buying,
Let’s turn to your top 10 picks for May. Last month, four of your top 10 picks delivered impressive double-digit returns. Which of your top picks do you think might deliver strong returns this month?
For May, we have a 30 per cent allocation to energy and 30 per cent exposure to financials.
From a breadth perspective, energy is the best sector in Canada, but any tweet or news that comes out of the U.S. administration or whatever follow up we get from the conflict in the Middle East may change the narrative. But I would say from a breadth perspective, the energy sector still has very good breadth so we view pullbacks as an opportunity. We have Cenovus, Keyera, as well as Whitecap in our basket of top 10 names. They show very well from a fundamental, quantitative and technical perspective.
I do think that financials may be able to deliver a good pace of return this month. Last month, we held National Bank. We still think CIBC (CM-T) and National Bank (NA-T) are the best banks in Canada. However, National Bank and CIBC are both technically very overbought. The Bank of Montreal and TD (TD-T) are not as overbought. BMO is one that has lagged and given that they all tend to move in the same direction in tandem, I think BMO is a good bank to hold in the portfolio. For BMO, we have a technical measured move that can be calculated towards $215 to as high as $217.
In general, banks are running at a good pace ahead of their earnings announcements. Typically, banks in Canada tend to do well into earnings and they often consolidate post- earnings.
I also have Manulife in our basket of top ideas. Manulife has a very high correlation to the direction of 10-year U.S. Treasury yield, and if we believe that the 10-year is going to stay elevated, I think that’s going to benefit Manulife. Recently, we put out a report favouring Manulife over Sun Life (SLF-T), and we’ve already seen some good traction on that pair trade.
Finally, last month we held Great-West Lifeco (GWO-T), which worked very well for us. We replaced it with Power Corp, which has a material amount of its earnings from GWO. I think POW can benefit from GWO’s strength.
Why not just carryover GWO?
From a size and quality perspective, they are very comparable. While we favour both stocks, tactically POW has better relative strength over GWO.
Can you give us your targets for each of the stocks that you just mentioned?
Keyera can extend to as high as $60. Downside risk for Keyera is about $46 to $48, any dip in that range is a buying opportunity. I think that’s a good name to review on any pullbacks.
Cenovus has had a great run and it’s in price discovery. When stocks make new highs and are in price discovery, we advocate using weakness to add exposure, and if you are long, then stay long. We think Cenovus has a very strong technical band, which is pegged against the $35 level, and that’s an opportunity. The measured move for Cenovus is closer to $42 to as high as $44 on the upside. So, not a lot of upside but certainly a name that has strong alpha from a relative strength perspective. I think we are in an environment where we need to start focusing on relative performance and not necessarily so much on absolute performance.
Whitecap reported a strong set of numbers. It’s been one of the best names from a fundamental and earnings perspective. The stock does have fundamental upside toward $19. We’re at new highs. So, I’m of the view that dips are buying opportunities and downside to $15, $14 and change is an opportunity. I think the upside measured move is $17 plus.
For Manulife, in Canadian dollar terms, we are looking at upside of $57, $58, that’s our measured move. It has very strong bands of support below $52.
As far as Power Corp. goes, I had a measured move of $78 to as high as $80, and it’s already up there. It’s been a strong leader in our quad process, and if I want to stay with financials and need alpha, this is a name that can produce relative strength. Generally speaking, it is a very good alpha name for me.
In terms of geographical ETFs, last month you highlighted the top ranked ETF, iShares MSCI Taiwan ETF (EWT-A), which is tied to technology. It has rallied strongly over the past month. It’s now ranked in second place, ousted by Franklin FTSE Taiwan ETF (FLTW-A). Should investors stick with what is working and hold these Taiwanese ETFs? What regions are ranking well?
Taiwanese ETFs are excessively overbought. We’re looking at about 10 per cent to 11 per cent downside risk from a mean reversion to the monthly average. They’re printing very strong momentum, relative strength, so I believe there will be dip buying.
But the area that is showing well is emerging markets. Emerging markets are coming back up in our models so iShares MSCI Emerging Markets ETF (EEM-A).
State Street SPDR S&P 500 ETF (SPY-A) picked up 27 points of delta. The U.S. is certainly coming up in relative terms as it is tied to technology with its 30 per cent technology sector’s weight in the S&P 500.
iShares MSCI Israel ETF (EIS-A) is also another area of focus as a strong relative and absolute performer.
Is there anything else that you want to highlight to readers?
We do not have breadth confirmation for the market. We do not have volume confirmation for the recent rally, which may develop as we go forward, or it may not, which would then make the market susceptible to a mean reversion.
But the fact that we’ve seen money go back to the previous leaders gives technology a good benefit of the doubt that they’re probably going to continue to lead going forward, so dip buying within the sector will become dominant.
I still believe that year two of the presidential cycle is a challenging year, and irrespective of the fact that we had a minor correction in the benchmark indices in the U.S. and Canada, I still think that we may be faced with something bigger as we go forward. I’m not quite sure where that may come from. It could be something to do with the U.S. Federal Reserve or the U.S. yield curve that has been by some measures flattening. I’m open minded as to what down the road may look like and I don’t necessarily see a dire picture, but I’m still of the view that we didn’t really see a capitulatory or a typical correction that we are used to in year two of the U.S. presidential cycle as well as in year four of the bull market. So, that’s still an overhang in my opinion.
This Q&A has been edited for clarity.