The stock market is showing the early signs of weakness. Because the stock market growth has been so strong, it will take some time before bonds present better momentum and thus appear more attractive.

Over the past week, interest rates have fallen, meaning that bond values have risen. Both of these are resistant to growth in stock prices. The TSX60 fell 0.23% over the past week, while the broader TSX fell more than 0.5%.

Last week, I failed to notice that the TSX had broken its all-time high, and that the stock market value had reached new heights. That’s usually a time that traders get nervous, which often causes prices to pause and even drop for a period. Looking at the TSX60 and the broader market, it appears that only gold producers are increasing in price. This means that the movement of the average likely understates the fall in price, since a few stocks are bringing the average up.

For the present, I remain of the opinion that tactical allocation should prefer stocks to bonds, but it probably makes sense to even weight them, not overweighting either asset class.

Between the various asset classes, small cap stocks (XCS) continue to be in favour, but only because all asset classes are weakening together.

As an aside, I may not be able to post during the next two weeks.

Market Outlook July 14, 2014

Leave a Reply

Your email address will not be published. Required fields are marked *