The American stock markets (despite AAPL) took a beating last week. Canadian stocks, in contrast, didn’t do badly. From the perspective of my momentum model, US stocks (IWM, SPY) lost top spot. Instead, Chinese stocks (FXI) have the best momentum, but are only a couple points ahead of small-cap Canadian stocks (XCS). I’d own XCS in Cdn$, except that MG is still doing far better. Individual stocks are more volatile than indices, meaning they go up (and down) faster, which should translate into more profitable trades.
Interest rates have risen again, pushing bond values down. Bond market momentum (viewed broadly) is negative. This is the first time in a long time that long government bonds have yielded over 3%, which is a reflection of continued very low risk tolerance on behalf of most investable dollars.
The combination of strong performance for Canadian stocks and weak performance of bonds produces very strong momentum in favour of stocks. A portfolio that is balanced between stocks and bonds should seriously consider being overweight stocks.