Bonds rose in price somewhat over the past week. Medium term interest rates didn’t move, but long-term and short-term rates rose slightly. That should have pushed bond values down, but it’s possible that increased demand kept the price up. It seems a little strange, though, given that the stock market has started to rise and the economic outlook isn’t particularly strong. To be fair, the economic environment is supportive of expansion, with low interest rates and low inflation. That’s looking backward at recent data, while the stock market is forward-looking. It seems more and more likely that the stock market will continue to rise throughout the next couple months.

A balanced portfolio would benefit, given all appearances, from an overweighting in stocks. Bonds aren’t currently dragging it back, but they’re not helping as much as stocks. Bonds have risen 0.70% over the past 2.5 months, in addition to producing 2.99% (annual) interest. Stocks, on the other hand, have risen 6.67% over the past 2.5 months.

The US market continues to benefit from the strongest tailwind. US large caps (SPY) have the greatest momentum, followed closely by US small caps (IWM). Fortunately for those of us investing in CDN$, Canadian large caps (XIU) aren’t too far behind. Personally, however, I will continue to own MFC, which has better momentum than any of the market ETFs.

Market Outlook November 18, 2013

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