Over the past week, stock markets fell slightly. The TSX, for example, ended the week 1.5% lower. That performance does not help momentum, which still favours bonds. Although the difference is narrowing, stocks have yet to show consistently positive momentum. Although almost no asset classes related to stocks had positive performance over the week, emerging markets (XEM) still appear the most favourable.

The stock market persists in undervalued territory. Since the market has fallen, it appears slightly more undervalued than last week. It appears that pessimism continues to be the overwhelming stance of investors. There is no shortage of problems on the horizon, which affects the willingness of investors to commit funds to risky assets.

The economy is obviously not robust, but it doesn’t appear weak here in Canada. Interest rates are low to support economic expansion, and the interest rate curve is positively sloped, which is supportive of profits at financial institutions. Although I’m not expecting an overnight recovery and a sudden jump higher in market value, I don’t expect a recession (in Canada) either.

Market Outlook February 13, 2012

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