Market Outlook December 11, 2010

This past week, the Bank of Canada maintained their prime lending rate. That implies that the central economists didn’t see enough (above average) strength in the economy to warrant raising rates. If the economy were flying at over-capacity, I would be concerned. But as things are, it seems to be weakness during the recovery. Other interest rates, for 5 year fixed mortgages and for government bonds, are virtually unchanged. The remainder of the year, given the holiday season, is likely to be pretty quiet as far as reactions to economic news.

Stocks continue to display impressive momentum. The market continues to advance while bond prices fall. Given the seasonality of the stock market, this can be expected to continue through the next 3-5 months. My comments about the apparent valuation of the stock market would mirror last week’s. The market appears to be slightly above fair value, but not outside of reasonable bounds. It will be interesting to see if earnings continue to rise, to support the increasing stock prices.