Interest rates have remained essentially unchanged over the past week. Economic indicators are appearing weaker than previously, so the likelihood of the Bank of Canada raising rates is much lower. Bonds have fallen back while stocks have surged ahead. Bonds are at the same level they were 10 months ago, and stocks have advanced 10% over the same period. However, the stock market made those gains before May 2010, and is just now recovering those highs.

The stocks market has begun September with positive momentum. The first few days of August were also positive, but the market experienced a negative return over the entire month. At the same time, money managers, investors and traders are all back from vacation and looking to profit from prevailing trends. The volume over the past week was higher than any of the previous ten weeks. It’s as if cash that has been sitting idle has now been committed to buying stocks. September is the end of the quarter, and institutions that report quarterly holdings will want to be able to report high levels of utilisation of capital, especially in a profitable market. I’m waiting to see if the market can break through 12,250 and, if it does, watch it head higher into the end of the year.

While economic indicators have been disappointing, I remain unconcerned. Keep in mind that the economy is in recovery mode. We have been through a recession. We may not be out of the woods yet, but we are heading in the right direction. The path is never smooth, and I worry most when everything seems to be going perfectly well. In this recovery, we will see different countries recovering with different strategies, we will see different organisations cope using different strategies and we will see different companies recover at different rates. We shouldn’t expect everything to turn from gloom to sunshine overnight. I have found that markets tend to crash all at once, but rise in fits and starts over a longer period of time.

September 4, 2010 Market Outlook

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