Over the past week, interest rates rose modestly, which translates into a loss of value for bonds (-0.3%). By comparison, the value of the stock market rose (0.9%) for the fifth straight week. It stands to reason, then, that the momentum of stocks makes them much more attractive than either bonds or cash. Stocks actually look better positioned now than they have since April of this year. Some years, the summer vacation translates into a long, boring sideways movement for the stock market, but that doesn’t appear to be the case this year, at least not yet.
Comparing the various asset classes that I track, small cap stocks (XCS) continue to come out ahead. I like seeing this type of steadiness in the comparison, because it means that volatility is relatively low, confidence is relatively stable and I’m not going to pay a bundle in transaction fees by trading (which tends to be useless when it’s too frequent).
As I pointed out last week, owning Canadian large caps (XIU) has been just as good recently and has been more beneficial than asset rotation over the past year. I assume that, presently, that’s because of the Canadian market’s large exposure to gold producers and mining stocks, which seem to be in favour currently.