The Canadian stock market rose 0.73% last week. I feel like telling the market: Thanks for nothing! The current market level is 4.32% lower than three months ago and 6.24% lower than six months ago. A year ago, the market was 13.48% higher. My point is that, last week notwithstanding, the market value has been sliding in the wrong direction: downward instead of upward. Not everyone who has invested in the past year has lost money, but it has been the experience on average. Will that change over the coming week? I’m extremely doubtful. If I had a portfolio balanced between stocks and bonds, I would continue to favour bonds.

Bonds don’t necessarily move in reverse of stocks. Just because stocks will eventually turn and become profitable, doesn’t mean that bonds will certainly lose value (although it’s likely). As an example, stocks and bonds both gained last week. Looking more broadly at a variety of asset classes, real estate (XRE) performed the best and I continue to hold real estate in my portfolio over the coming week.

Inflation came in higher than the previous report, rising from 1.2% to 1.5% (total), hinting that the economy may have strengthened. However, the data is from June, so it’s a little stale. The prime interest rate remains unchanged, and government bond yields have risen very modestly. Taken together, these indicators all hint in the same direction as inflation: the economy may be marginally stronger.

Despite all the above, it’s summertime. The weather has been good and many traders and investment managers will be taking some vacation time. I don’t expect to see any clear change in direction before September.

Market Outlook July 23, 2012

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