Stocks went virtually nowhere over the last week, while bonds rose in value and interest rates fell slightly. What does it mean? It causes me to worry a little, because of the RRSP deadline which has been driving prices up. I expect prices to fall back over the next week or two in a small correction of 5% or potentially as much as 10%. But for the moment, stocks continue to outpace bonds easily.

Canadian small cap stocks (XCS) maintain the highest momentum among the asset classes that I watch, with US small caps (IWM) not too far behind.  Large caps (XIU, SPY) are not far behind, along with gold (IGT). If stocks suffer a correction, gold may offer some protection, but I wouldn’t choose the precious metal to create value.

Top line inflation (1.5%) isn’t high, but it has been rising somewhat. GDP is also reasonable at 2.3% (for Dec). I look at those numbers and, although they are backward looking, they give some hope that the economy has strengthened somewhat. Is it enough to sustain the market at its highest point in four years? Will the market be able to push higher? It will eventually, but possibly not for a couple months, depending on the Q4 and Q1 corporate earnings reports which are due out in a few weeks.

Market Outlook March 3, 2014

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