Interest rates dropped a little bit, especially on the short end of the curve. As a result, bonds produced a positive return for the week. Stocks also had a positive week, ending 1.8% higher. New inflation numbers were reported, a little higher than last month, but just below the Bank of Canada’s mid-range target of 2%. The economy is far from overheating, but you didn’t need me to tell you that. It does look a little healthier than last month, however.

Stocks continue to outpace bonds. The momentum difference is adequate to make me believe that stocks will likely continue to outperform bonds over the remainder of the summer. And looking at the various assets in my model, US stocks (IWM, followed by SPY) continue to shine. I’m surprised by the magnitude of the gains in these two ETFs over the past two weeks. It looks like the fast and smart money is moving into US stocks. European stocks (XIN) aren’t too far behind, with Canadian large caps (XIU) after that.

I still have my money in Magna (MG), but it didn’t do well this past week and I’m going to watch it closely this week. If it continues to fall, I’ll be looking to switch. MG still has better momentum than IWM, but that could change in the near future.

Market Outlook July 22, 2013

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