Michael Hlinka: Momentum of stock market rally is questionable
- May 12, 2009 9:22 AM |
- By Michael Hlinka
Money Talks is a business column from CBC radio.
By Michael Hlinka, CBC business columnist:
Last week, the Toronto Stock Exchange broke the 10,000 mark. Some people in my business assigned particular importance to this event. Others didn't, noting that other than 10,000 being a nice round number, there's no real meaning to it.
However, everyone did agree that the market's direction is telling us something … what the message is, however, is open to debate.
One interpretation I heard floated was that there may be light at the end of the economic tunnel. There was a surprisingly strong employment report out of Canada on Friday. There was actually job creation in April, while in the United States fewer people were thrown out of work than had been expected. People losing their jobs doesn't sound like good news, but it's the rate-of-change argument: Before there can be positive growth, the decline has to abate and there's a certain logic to that point of view.
But here's my reading of the recent action in the TSX: The market was badly oversold, and it should never have been below 10,000 in the first place.
How can I reach that conclusion? Actually, fairly easily. When people think about investing, they have two broad choices: They can either put their money into stocks or bonds. Since the world's Central Banks have been cutting interest rates aggressively, the return you make on bonds - particularly government bonds - has fallen off a cliff. And we know that stock markets have a manic-depressive quality to them - their highs are generally too high and their lows almost always tend to be too low.
What I'm saying is that 10,000 seems about right for the TSX, at least right now.
Where do the markets go from here? My guess is that it's sideways over the next few years … and here's why. The economy will eventually start to grow, slowly, as all the monetary and fiscal stimulus starts to kick in. But at the same time - and this is very important - inflation is going to rear its ugly head sooner than you might think.
I don't know if you heard the recent comments from Tim Horton's CEO, but he warned that price increases are around the corner. When I walked out my door this morning, I saw that a litre of gasoline was perilously close to the $1 mark. According to Statistics Canada, even shelter costs are going up. All these increases will contribute to inflationary pressures and weigh down the stock market.
Look, don't get me wrong. I'm as happy as the next guy that the Toronto Stock Exchange is hovering around 10,000 instead of 7,000. But I'm not particularly hopeful that it will go much higher, at least in the foreseeable future.
- Andrew Wahl (19)
- Andrew Willis (13)
- Bob LeDrew (10)
- Dan Noel (1)
- David Baskin (18)
- David Berman (1)
- David Colman (14)
- Deborah Yedlin (29)
- Duncan Stewart (29)
- Ellen Roseman (90)
- Jacqueline Drew (10)
- Jim Bray (25)
- Jim Jubak (6)
- John Gilchrist (4)
- Kelly VanBuskirk (6)
- Kira Vermond (73)
- Loraleigh Kovacik (9)
- Michael Hlinka (183)
- Peter Vincent (16)
- Pierre Battah (1)
- Todd Hirsch (1)
All News blogs
- Kira Vermond: Resolutions for Work
- New Year, new you. At least that's what you're shooting for in 2012 at your workplace. This is the year that you're going to ditch your wallflower ways, speak up in meetings and take the initiative.... Continue reading this post
- Ellen Roseman: Air Miles-Use them or lose them!
- If you're collecting Air Miles, you now have only five years to use them. And if you don't redeem in time, you'll lose them.... Continue reading this post