Having completed the first week of March, so far 2012 has had one triple digit market swing in a single trading day. This is most welcome considering the market experienced triple digit moves in a single trading day 42% of the trading days logged last year. Clearly the volatility index (VIX) has normalized, Greece has received their bailout-orderly default, the U.S continues to create jobs (200,000+ reported last Friday), and interest rate policy both in Canada and the U.S continues to be favourable. Last Thursday Mark Carney (Bank of Canada Governor) stated “he no longer sees the ominous dark clouds threatening the global recovery he had warned about in his last review in January” which is encouraging. In terms of the stock market, the S&P 500 has logged it’s best February since 1998 and the Nasdaq briefly topped 3,000 points which was last reached in December 2000.
All this news is positive yet I continue to remain cautious. It is an election year in the U.S which means more inaction from Congress (remember the U.S debt ceiling debate last year which led to the downgrade of U.S credit from Standard & Poor’s rating agency), the developing tensions in Iran, market pundits already warning that Greece is the first of many more European Countries to follow suit like Portugal and Spain. In Canada, in the same speech from Mark Carney last Thursday, he once again warned Canadians of their ballooning household debt levels and the domestic risks it may create once interest rates begin to rise. For this reason, I continue to hold a portion of asset classes that carry income producing yielding opportunities. They carry less risk, pay us to wait, and have great downside protection.
As an FYI, the last round of corporate earnings confirmed that the businesses we hold continue to be fundamentally sound with just under 70% of the earnings beating street consensus, which is good. If the economic data continues to improve as it has been, if geo-political risks remains somewhat contained, if no surprises come out of Europe, and the next round of quarterly earnings continue to improve, we could very well see a continuation of this market uptrend. Time will tell!