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Summary
- Stocks in Canada fell again in July as an early month rally was reversed on fears about a slowdown in global growth and the US budget dilemma.
- The Canadian bond market was benefitted from growth fears as bond yields fell and drove prices higher. The DEX index gained 2.05% in July. Longer-term bonds were the clear leaders though as 30-year bond yields fell by over 25 basis points to 3.28% and prices rallied by 3.8%.
- Commodity prices were generally stronger last month as the US dollar fell and pushed Gold (up 8.5%) and Silver (up 15.0%) higher. Copper prices also rose while Uranium, Lumber and Natural Gas prices all fell around 5%.
- The Economic data was slow again in July as the 2nd quarter weakness continued in the U.S., Europe and China. Japan was the only major economy to turn higher but still remains 5% below the ‘pre-earthquake’ level.
- In terms of stock sectors, the Basic Materials sector was the only winner, gaining 1.6% on a 3.0% gain for the Gold sub-sector. All the other 9 sectors lost ground in July, lead lower by the Financials which fell by over 6.0%.
- Our Stock Market Outlook is now more bullish than it has been since the lows seen last August. We expect economic growth to recover in the 2nd half and have seen some strong lead indicators of this (auto production, rail car loadings and electricity output all up sharply in July while unemployment claims have fallen). Meanwhile, corporate profits continue to improve with 2nd quarter numbers showing nearly 20% annual gains. Interest rates remain exceptionally low and stock valuations have fallen back to historically attractive levels. We expect stock prices to move higher and could see them surpass their prior highs within the next 12 months.