Market Outlook September 15, 2014

Interest rates continue to creep up. That’s not helpful for bond values, which fell again over the past week. Stocks barely increased, but that’s still positive. The result is that stocks continue to outpace bonds, and the outlook is very much in favour of better performance by stocks when compared to bonds. That doesn’t mean stocks will necessarily be positive, however.

This week, Canadian large cap stocks (XIU) have the best momentum amongst various asset classes. In the interest of taking responsibility, my advice last week to own Brazilian stocks turned out very badly. Luckily, I didn’t follow my own advice, owning CP instead. It doesn’t have the same diversification, but it produced better returns, which appears likely to continue for the coming week.

American tech stocks look interesting, including Microsoft, HP, Intel, Apple and Google, for anyone who’s watching and is inclined to do a little more research on your own.

Market Outlook September 8, 2014

Oops, I’m a little late in writing this today. Stocks rose slightly last week, which put them far ahead of bonds. Fixed income retreated as interest rates rose. That leaves stocks with better momentum by comparison, but also with relatively good momentum. The summer was a relatively profitable period for stock investors (but it’s over here in Calgary, with our first snow!). September and October don’t look likely to be as problematic as they have sometimes been in the past.

Brazilian stocks still hold the lead in comparative momentum. They are followed by Chinese stocks, Canadian stocks and US large caps. I’m optimistic for the near future.

Market Outlook September 2, 2014

Markets are closed on September 1 for the Labour Day holiday.

Over the past week, both stocks and bonds rose in value. While both have produced positive growth over the past week, month and year, stocks have outperformed bonds by rising more quickly. Stocks continue to present better momentum, and should be overweighted in any balanced investment account.

Brazil stocks (EWZ) have suddenly leaped forward, which gives them the greatest momentum among various markets. I don’t know the reason for the jump, and have no opinion whether or not it will continue (presenting an investment opportunity) or revert (presenting risk). American large caps (SPY) and Canadian large caps (XIU) both continue to have good momentum also.

Tim Hortons (THI) suddenly jumped in value as a takeover bid was made by Burger King. I don’t believe that one-time events truly impact ongoing momentum, so I will not purchase shares. Among Canadian large cap companies, CP continues to lead in momentum.

Market Outlook August 25, 2014

The past week was a healthy one for stocks. Headlines on Friday said the market “dropped”, but it was actually fairly flat. To be honest, so were Monday and Thursday. Tuesday and Wednesday, however, produced such strong gains that the entire week was up 1.5%.

Bond values fell and yields rose. That’s not helpful for bond owners, but an improvement for prospective buyers. Bond yields are so low, that it appears a lot of money is still very nervous. That seems a little strange, since the stock market is making new highs. But if money were to move from bonds to stocks, bond yields would rise even more, which would make bonds a better investment and would be more in line with past averages.

Not surprisingly, stocks continue to show better momentum than bonds. Any balanced portfolio should continue to overweight stocks. This continued strength is out of the ordinary for the summer months, but probably reflects an appreciation of economic growth and corporate profitability and indicates that this year will, overall, be a good one.

Amongst asset classes, Hong Kong stocks (EWH) have surpassed Chinese stocks in momentum. Canadian stocks (XIU) and emerging markets (XEM) in CDN$ are tied just behind.

Market Outlook August 18, 2014

Stocks rose a little over the past week, while bonds stayed flat. That improves my confidence in stocks somewhat. Interest rates are low and inflation expectations aren’t too high, so there’s very little chance that bonds will suddenly earn or lose much money. Stocks, on the other hand, may do quite well, but with the proviso that some will do much better than others.

Chinese stocks (FXI) continue to lead the way. Other stocks have quite limited momentum, which is part of why I think that positive performance will be concentrated in a relatively small number of stocks, not generalized.

Market Outlook August 11, 2014

I’m surprised to see that interest rates have fallen again over the past week. I say that because they are already very low and, although they haven’t fallen far, that’s causing bond prices to rise. Bonds are a guaranteed investment, but at this rate, you’re guaranteed to earn just 2.6% per year for 10 years (and get your money back), or 0.6% over inflation (looking at real-return bonds, if the inflation expectation is realistic). I guess investors are nervous and want to play it safe.

Stocks had a negative week, the second in a row. Their momentum advantage over bonds is falling, although it’s still there. It’s also a way of saying that stocks appear (over the very short-term past) to have plateaued and stopped rising. I wouldn’t claim that it’s a new trend, but it causes me to watch closely.

Chinese stocks (FXI) continue to lead the momentum, although they may have also stopped rising, and their continued momentum could be a result of their recent spike. Emerging markets (XEM) and Canadian large caps (XIU) still look relatively attractive.

Market Outlook August 4, 2014

One thing about writing a market outlook every week, the time just seems to slip by. And when I watch the market every single week, the movements seem so small that it’s difficult to believe that these small gains and losses add up to large, long-term, compound returns. No wonder watching the market daily, hourly or minute-to-minute can be so distracting.

Bonds gained slightly this week, for the fourth week in a row. Interest rates are really low. Real return bonds are only paying 0.61% (plus inflation). Stocks fell in value over the past week, just a little more than they had gained the last week. It’s one step forward, one step back. Looking back farther, it’s more like two steps forward, one step back, because stocks continue to make progress, although volatility seems to be slightly more pronounced.

Actually, since I made a statement about volatility, I though I should back it up with fact. The VIX is at 17.03, which isn’t particularly high, unless it’s compared with its low for the year: 10.32 on July 3. Volatility was low during the months of June and July, and it seemed that everyone just put their investments on autopilot. Now, volatility has risen comparable with early February (10% correction), mid-March (2% correction) and mid-April (4% correction).

Having said all that, stocks are still poised to outpace bonds, although that relationship is weakening. Amongst asset classes, Chinese stocks (FXI) are still leading, but the absolute value of momentum has dropped for each ETF that I track.

Looking at Canadian large caps, gold producers continue to present the most promising momentum (I don’t own any from the TSX60), but I was surprised to see food producers join them: SAP, L and WN (none of which I own).

Market Outlook July 28, 2014

Interest rates have dropped, which should be supportive of economic growth and improved corporate profitability. I find it surprising that, despite the boost that lower interest rates normally give to bond values, stocks continue to have much better momentum. Whereas summer is usually a dead time for stocks, the last month has been pretty good (+2.33%).

Presently, Chinese stocks (FXI) have huge momentum, pulling up emerging market stocks (XEM), although Canadian large caps (XIU) are still doing reasonably well. Gold producers continue to look really attractive on the TSX.

Market Outlook July 21, 2014

Inflation is higher at 2.4% (top line). Interest rates, however, have fallen, implying that investors expect inflation is currently lower than the backward-looking reported number. Both, however, are indicators of economic strength, which is generally good for corporate profits.

Stocks and bonds both rose over the past week, which is not usual. Stocks were more profitable, so they gained momentum relative to bonds. Amongst asset classes, XCS is no longer very positive, and Brazil stocks (EWZ) have taken the lead. Within Canada, large caps (XIU) shows the greatest momentum (and is not far behind).

Looking across a greater number of stocks, I still see more negative momentum than I’m used to, but the number of positive stocks isn’t so small as to make me worry.

As a reminder, I’m unlikely to be able to post next week because I won’t have access to internet. Such is life.

Market Outlook July 14, 2014

The stock market is showing the early signs of weakness. Because the stock market growth has been so strong, it will take some time before bonds present better momentum and thus appear more attractive.

Over the past week, interest rates have fallen, meaning that bond values have risen. Both of these are resistant to growth in stock prices. The TSX60 fell 0.23% over the past week, while the broader TSX fell more than 0.5%.

Last week, I failed to notice that the TSX had broken its all-time high, and that the stock market value had reached new heights. That’s usually a time that traders get nervous, which often causes prices to pause and even drop for a period. Looking at the TSX60 and the broader market, it appears that only gold producers are increasing in price. This means that the movement of the average likely understates the fall in price, since a few stocks are bringing the average up.

For the present, I remain of the opinion that tactical allocation should prefer stocks to bonds, but it probably makes sense to even weight them, not overweighting either asset class.

Between the various asset classes, small cap stocks (XCS) continue to be in favour, but only because all asset classes are weakening together.

As an aside, I may not be able to post during the next two weeks.