August 14, 2010 Market Outlook

Bonds haven’t really moved this past week. Interestingly, 5 year mortgage rates have fallen from 5.79 to 5.59. This signals that there is quite a bit of money out there, looking for safe investments. The economy appears stable.

The stock market stalled, partly due to the jobless report. There seems to be a lot of nervousness about whether or not the economic recovery is real and can be sustained. Volatility had been falling, but jumped up again this past week. It was particularly noticeable in a 2% drop during a single day. That kind of volatility was normal in late 2008 during the market crash, but feels out of the ordinary at this point. Volatility is in a downward trend, and still well below the mini-correction of May this year.

We’re still in the midst of earnings reports in Canada. There must have been some good reports lately, because the stock market is predicting 25% earnings growth over the next 12 months, down from 29%. The P/E ratio of the market is down more than 0.5 from 19.36 to 18.82 over the last week. From this, I can tell that earnings have been fairly positive. We seem to be lucky in Canada to be missing out on much of the turmoil that the Americans are facing. US earnings reports are essentially done for the quarter, and investors are expected to pay more attention to economic cues.