June 26, 2010 Outlook

This market outlook is based on data from the end of the day Friday, June 25, 2010. It will usually be published at mid-morning on Monday of each week.

Interest rates on government bonds have fallen slightly. The yield curve is positively sloped, with a term spread just over 2%. The probability of a recession remains low.

Bonds are offering a low interest rate, with short government bonds paying 1.6% and long bonds paying 3.7%. Bonds are lower than 9 months ago, but higher than 3 months ago. Momentum may be building.

Stocks are higher than 9 months ago, but lower than 3 months ago. They seem to have very little momentum. The TSX Composite currently yields 2.8%, strangely, better than short bonds.

The outlook for the stock market is relatively healthy. With little chance of a recession, the probability of a bear market is low. The market is still in recovery mode, after the crash of 2008, and interest rates are low which favours expansion. As the economy recovers, so will the stock market.

However, the stock market has little momentum. Bonds have gained some value as stocks have fallen. There is no clear sign that it is time to shift investment weighting from stocks to bonds, but caution is warranted when buying stocks.