Wow. The past week was a surprisingly bad one for the stock market. The TSX fell 3.3%, most of that on Wednesday. The culprit appears to be the employment report, which showed that the US created far fewer jobs than expected and Canada had lost over 50,000 full-time jobs. Unexpected news that contradicts expectations is one of the hazards of investing in the market.
The impact is serious. Given that interest rates have fallen further and that stocks have lost a lot of momentum, stocks are only marginally more attractive than bonds at this time. It seems that the coming week will be very informative for which way the markets may go over the coming few weeks. When looking at my asset rotation model, almost all asset classes have lost momentum. XIN and IWM are still a little above zero, so I’ll continue to hold them for another week. But given the widespread “damage”, there’s a chance that investors may panic and start selling out of the market. I’m going to be watching this very closely.