Ugh. If we had to blame the recent market behaviour on something, there are the elections in Greece and France which don’t bode well for austerity. I’m sceptical that a new government is worse than an existing government, so I will reserve judgement. Earnings season is in full swing for the first quarter. So far, most of the companies I own are reporting decent earnings. Not stupendous, but reasonable. It’s also encouraging to see that companies are beginning to invest in future capacity, which implies that optimism is starting to return.

There are exceptions, however, and some companies continue to really struggle. The markets in general feel weighed down. The TSX is lower again, this week, and bonds have risen slightly. Volatility has risen somewhat. While it is far from the level that would cause grave concerns, it reflects the fact that investors are not confident. In fact, it’s easy to believe that many stocks are trading hands, where some investors finally feel that now is the time to invest, taking advantage of those who believe that the future is grim and it’s time to move to the relative safety of (expensive) bonds.

Momentum definitely favours bonds right now. In fact, there is little change from last week. Real estate continues to perform well, and I’m very pleased to own XRE, which I will continue to own over the coming week. In my taxable account, I sold D.UN and bought AAR.UN. I just wish I didn’t own ERF, and had instead bought units of another REIT. Even though REITs are more expensive now than a year ago, they still appear to be attracting capital and positioned to provide good returns.

Market Outlook May 14, 2012

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