THREE CHARTS TO START YOUR WEEK
AVERAGE ANNUAL REAL RETURNS FROM U.S. STOCKS
Mr. Market's long malaise
Are stocks finally poised to put in a better performance than bonds? That's the question Capital Economics' John Higgins asks in a recent report.
Though U.S. government bonds have done much better than the U.S. stock market since the beginning of the 21st century, that trend may be nearing its end, he argues.
He cautions: Given global financial turmoil, equities aren't going to start dramatically outpacing bonds right away. "But we do think the prospects for the U.S. stock market are much brighter than for bonds over the next decade as a whole," he writes.
He points out that bad decades for stocks were more than offset by four great decades - the 1920s, 1950s, 1980s and 1990s - that each saw double-digit returns. In contrast, bonds never topped a 7 per cent return rate.
Since 2000, bonds have had the upper hand, producing a 4 per cent real return, while stocks lost about two per cent. But the outperformance of bonds has become less pronounced in the past couple of years as the economy recovers, he says.
The stock market over the next decade should revert to its "fair" value and dividend yields, price-to-earnings ratio and profit margin should attain their long-run averages, writes Mr. Higgins.
A STABLE BASE
Canada's financial anchor
Institutional investors are known for their cautious, deliberate approach to managing portfolios.
Big pension fund managers, insurance companies and others typically follow a disciplined strategy based on best practices. They carefully set investment goals and try to measure and manage risk.
These large, slow-moving buyers can provide a welcome solidity to a country's bond market, says National Bank Financial's Stéfane Marion.
He cites recent research from the International Monetary Fund saying that a stable investor base is an important bulwark against bond market volatility.
Institutional investors contribute to that stability by following investment practices that don't typically result in dramatic shifts in their portfolios, says Mr. Marion. The good news? Compared with other nations, Canada is top heavy with institutional investors. More than 40 per cent of Canadian gross government debt is held by domestic institutional investors, he points out.
"This characteristic, combined with well-anchored inflation expectations and fiscal discipline, suggest that the Canadian bond market should be relatively less volatile than most other large foreign government debt markets going forward," he writes.
JOBS AT HEW HIGHS
Jobs, jobs, jobs
On the employment front, Canada's performance has been none too shabby lately.
Total employment in April bounded ahead by more than 58,000 new jobs, following March's outstanding gain of 82,000 jobs.
It's a two-month showing the likes of which hasn't been seen since 1981, says National Bank Financial's Matthieu Arseneau. And it gets even better in the details.
In those two months, 81 per cent of the jobs created were full-time and 91 per cent were in the private sector. Both are significant indicators of a healthy labour market, he points out.
The upshot is that both full-time and private-sector indicators are at all-time highs, he says.
The goods-producing sector improved as well, says Mr. Arseneau.
"Yet jobs in that sector have not fully recovered losses from the last recession," he cautions.
On the whole, the report stands in stark contrast to the numbers from just a few months ago, when the stats indicated nation job growth was stagnating as a result of an employment collapse in Quebec, he writes.