The past week was a healthy one for stocks. Headlines on Friday said the market “dropped”, but it was actually fairly flat. To be honest, so were Monday and Thursday. Tuesday and Wednesday, however, produced such strong gains that the entire week was up 1.5%.

Bond values fell and yields rose. That’s not helpful for bond owners, but an improvement for prospective buyers. Bond yields are so low, that it appears a lot of money is still very nervous. That seems a little strange, since the stock market is making new highs. But if money were to move from bonds to stocks, bond yields would rise even more, which would make bonds a better investment and would be more in line with past averages.

Not surprisingly, stocks continue to show better momentum than bonds. Any balanced portfolio should continue to overweight stocks. This continued strength is out of the ordinary for the summer months, but probably reflects an appreciation of economic growth and corporate profitability and indicates that this year will, overall, be a good one.

Amongst asset classes, Hong Kong stocks (EWH) have surpassed Chinese stocks in momentum. Canadian stocks (XIU) and emerging markets (XEM) in CDN$ are tied just behind.

Market Outlook August 25, 2014

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