I was briefly looking back at the market level over the past 13 years. I was struck by how little movement there has been over the recent past. One step forward, one step back, and the stock market has made very little progress. In 2007, the TSX flirted with levels over 14,000. In 2008, the market reached 15,000 (before falling to just over 8,000). It took until early 2011 before the market broke 14,000 again, but it didn’t last. It tumbled to just over 11,000 before slowly climbing back to 14,000 earlier this year. Over the past seven years, investors (and speculators and savers and gamblers and pension funds) have (on average) experienced a lot of fluctuation and made essentially no progress.

That assumes buy and hold with no fees. Any costs, such as fees and taxes, and any trading losses would produce an even worse result. That makes me feel a lot better about not really increasing the value of my investment accounts since I quit working in 2011. But my momentum approach should outperform buy-and-hold, because there’s always something that’s working, it’s just a matter of getting in front of the herd, and keeping the transaction costs down.

This week, stocks performed well. Interest rates rose slightly, from a very low level, which caused a negative return for bonds. It’s not time to sell stocks, since they continue to perform well, and have more promise over the near term.

Between the various markets (which is more accurate than “asset classes”, even if I refer to “asset rotation”), Emerging Markets (XEM) has slightly better momentum than Brazilian stocks (EWZ), followed by Hong Kong stocks (EWH) and Canadian large caps (XIU). I wonder how much influence the exchange rate has on that relationship.

Market Outlook May 26, 2014

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