A Look at the Market's Big Picture

Just a few days into August and markets seem to have picked up where they left off in July.

Here’s a summary of market action and key developments from last month, including monthly benchmarks.

• Investors saw more data indicating that healing is underway in the global economy. Increased optimism paved the way for a fifth consecutive month of gains across world markets.
• International stocks advanced. The MSCI World Index returned 8.4% (in $US terms). Since March 9th, the MSCI Asia Index has risen about 58% in local currency terms.
• Commodity prices rose. Copper is up more than 80% year-to-date supported by increased demand from China. The S&P/TSX Composite Index benefited, adding 4%. The S&P/TSX has climbed 45% since hitting a five-year low on March 9th.
• In the U.S., stocks made up more ground. The Dow Jones Industrial Average (DJIA) had its best month since 2002, up 8.6% . The S&P 500 Index advanced for the fifth consecutive month (the longest streak since 2007) gaining 7.6% . The S&P 500 is now up more than 40% since March 9th and Monday, it closed above the 1,000 level for the first time since November 2008.
• Volatility continued to be a key theme in currency markets. After falling more than 6% against the U.S. dollar in June, the Canadian dollar appreciated by 7.4% versus its U.S. counterpart in July. This cut into returns on investments denominated in $US. Case in point, the 7.4% gain on the S&P 500 was essentially wiped out when converted back to C$.

With much of the latest economic news continuing to look less bad (over 70% of companies beat expectations last quarter and it appears US housing may have found a bottom), the economy looks to be on the mend.

However, we must realize that the rate of recovery that we are seeing is not normal and likely cannot be maintained long-term. That said, as an investor looking out 5+ years I belive valuations in the equity market are still low and the potential remains for double-digit returns heading forward over a 5+ year horizon.

Comments

[WhoisJohnGalt:]

Depending on your risk level, dabble in the rally if you please. But please, please, please, be hedged against a systemic downturn. We're running out of "less bad" news for the quarter, and people confident in data running into the black in the short term will be sorely disappointed.

Aug 05 03:53 PM

[Larry House:]

We can't see the next two months clearly, let alone 5 years. Things look good now; good time to play some defense.

Aug 05 04:14 PM

[Poborsky:]

So you believe that we are going to see a recovery long term. The US consumers are still losing their jobs and the working week for those that still have jobs has been cut. Dont forget debt levels, private and public. Commercial and private real estate markets imploding, banking system insolvent, government treasury ponzi schemes, trillions in stimuli thrown at the economy produces a minus GDP number, stock markets propped up by false accounting and printed money. Many green shoots.

Aug 06 02:31 AM