Oops. I missed a bunch of weeks over the winter holiday, but I’m getting back on track.
Over the period that I missed, since Dec 13, 2013, the TSX has risen a little over 3%. Actually, I rose more than that, but fell back over the past couple days. I’d say that 2014 is off to a good start for stocks. My prediction for the year: the market will move both up and down, with slightly more up than down, with the possibility of a correction in September or October. To be fair, that’s my prediction every year.
The market continues to favour stocks over bonds by a wide margin. The recent pullback has only reduced the advantage of stocks from exceptional to clear. Having said that, certain individual stocks appear to be doing well while the broader indices are struggling. In comparing the different ETFs that I use for proxies of asset classes, only Canadian small caps (XCS) have very good momentum. Whereas emerging markets were doing well at the end of last year, Brazilian and (to a lesser extent) Chinese stocks are suffering. Almost tied with Canadian small caps is gold (IGT), and in second place are US small caps and bonds. The outlook, therefore, is somewhat cautious.
In the six weeks that I wasn’t paying attention, interest rates have barely moved. Inflation has picked up (from 0.7% to 1.2%), implying that the economy is ticking along. The Christmas shopping season probably helped. I’m not sure if the weather is the same everywhere, but it’s been relatively cold this year in Calgary, which makes shopping attractive as a warm, indoor winter activity. It will be interesting to see if that translates into profits for retailers when Q4 and Q1 results are announced in a few months.
Looking back over 2013, the US market (SPY) has clearly outperformed the TSX (20% vs. 6%). That would only change, I believe, if there were a new bull market in resources and commodities, which seems unlikely given that we’ve just experienced a 12 year bull and the cycle is more likely to reverse before beginning again. That doesn’t mean Canadian companies will struggle, but the TSX index isn’t likely to keep up with the S&P 500. Another indication that the bull market in commodities is running out is the -15% result for gold (IGT).
Given that certain Canadian large caps continue to perform well (I’ve been very happy with Gildan (GIL)), I will own an individual stock instead of an ETF this week, probably switching from Gildan to Magna International (MG).