One thing about writing a market outlook every week, the time just seems to slip by. And when I watch the market every single week, the movements seem so small that it’s difficult to believe that these small gains and losses add up to large, long-term, compound returns. No wonder watching the market daily, hourly or minute-to-minute can be so distracting.

Bonds gained slightly this week, for the fourth week in a row. Interest rates are really low. Real return bonds are only paying 0.61% (plus inflation). Stocks fell in value over the past week, just a little more than they had gained the last week. It’s one step forward, one step back. Looking back farther, it’s more like two steps forward, one step back, because stocks continue to make progress, although volatility seems to be slightly more pronounced.

Actually, since I made a statement about volatility, I though I should back it up with fact. The VIX is at 17.03, which isn’t particularly high, unless it’s compared with its low for the year: 10.32 on July 3. Volatility was low during the months of June and July, and it seemed that everyone just put their investments on autopilot. Now, volatility has risen comparable with early February (10% correction), mid-March (2% correction) and mid-April (4% correction).

Having said all that, stocks are still poised to outpace bonds, although that relationship is weakening. Amongst asset classes, Chinese stocks (FXI) are still leading, but the absolute value of momentum has dropped for each ETF that I track.

Looking at Canadian large caps, gold producers continue to present the most promising momentum (I don’t own any from the TSX60), but I was surprised to see food producers join them: SAP, L and WN (none of which I own).

Market Outlook August 4, 2014

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