• TSX +208.70. surged after a steep selloff the day before, as upbeat investors scooped up beaten-down shares including heavyweight energy and banking issues. Canada's oil production might be perceived as a bit safer than U.S. Gulf-based production.
• DOW +225.52 where investors were encouraged by U.S. data showing pending sales of previously owned homes increased to a six-month high in April.
• Dollar +1.42c to 96.30cUS
• Oil +$.28 to $72.86US per barrel.
• Gold -$4.20 to $1,221.50 USD per ounce
Outrunning the bear market
by By Alexandra Twin, senior writer
Wednesday, June 2, 2010provided by
After the Dow's worst May in 70 years, the threat of the stock correction becoming a full-blown bear market has intensified.
But this isn't new territory for long-term investors. They've faced this precipice 29 times since World War II, according to Standard & Poor's chief investment strategist Sam Stovall.
In 17 cases, they've avoided seeing a correction (a decline of at least 10% off the highs) turn into a bear market (a decline of at least 20% off the highs).
In 12 cases, they weren't so lucky. And in three of those 12 cases it became what Stovall calls a "mega meltdown," or a decline of 40% or more. In fact, the 2008-2009 stock market bloodletting sent the S&P 500 crashing 57% from an all-time high to a 12-year low.
But as the correction vs. bear market debate continues, what seems to be critical, at least on the technical side, is that the selling not surpass 15%. Historically, if that happens, the correction will become a bear market.
So far this current correction has avoided that 15%. At its worst, the S&P 500 was down 12.3% off the highs. As of Tuesday's close, the S&P 500 was down 12% from the highs.
But hovering below the 15% mark doesn't mean the selling is over by any means.
"We don't know if the market direction is going to be up or down, but we do know it's going to be up and down day to day," said Randy Frederick, director of trading and derivatives at Charles Schwab.
The increased volatility increases the likelihood of more selling, particularly with the market in a mode where it retreats on both big news and a lack of news.
The threat of the European debt crisis, the weaker euro, the BP oil spill, increased tensions between North and South Korea and signs that China's booming economy is slowing all dragged on stocks in May. But there have been numerous days in which there was little relevant news, either on the positive or negative side, and stocks sold anyway. Tuesday's market, for example.
So correction or bear? Here's what to consider:
Correction: If the market is in correction mode, it will probably chop around for a few months, then move higher, according to Stovall.
Of the 17 times that the correction didn't become a bear market, stocks lost an average of 14% over a four-month period. Typically it took stocks another four months to get back to breakeven, and another four months of gains before another correction or pullback kicked in.
A pullback is considered a decline of 5% to 9.99%. They happen frequently and like corrections, are part of normal market functioning. Stovall estimates there have been more than 50 since World War II.
There were only two times (1955 and 1997) that the market "corrected," recovered and then turned lower right away. More often, the market gets back to breakeven and then gains an average of 10%.
Bear market: S&P research shows that when a correction becomes a bear market, it tends to stretch on for 14 months and yield a decline of 33%, on average. The recovery back to zero tends to take nearly two years.
Stocks currently appear to be in a "garden variety bear market," pushing toward a decline of 20% to 30% as the mountain of problems becomes too much for investors, according to the editors of the Stock Trader's Almanac.
Heightened investor worry: In what could be either a bad or good sign, depending on whether you're a contrarian, investor sentiment took a turn for the worse last week, according to the latest survey from the American Association of Individual Investors (AAII).
Bearish sentiment, or the expectation that stocks will fall over the next six months, jumped 17.2% to 50.9%, marking the highest level of pessimism in the survey since November 2009.
Also, AAII's monthly survey showed investors pulled money out of stocks last month and reallocated it to bonds, cash or cash equivalents, reflecting global jitters and the fear of further stock erosion.
Investors held just 50.9% of their portfolios in stocks and stock funds in May, down 9.5% from April. That's the smallest percentage in stocks since May 2009, shortly after the market bottomed. It's also below the historical average of 60% http://ca.finance.yahoo.com/personal-finance/article/cnnmoney/outrunning-bear-market-20100602
House prices have peaked for the year
By Sunny Freeman
TORONTO — Skyrocketing home prices appear to have reached their height and are expected to stabilize for the rest of the year and into 2011 as the real estate market cools significantly, economists say.
Gregory Klump, chief economist at the Canadian Real Estate Association, foresees a slight decline in year-over-year prices in the latter half of 2010 before they flatten in 2011. This will happen as new listings come onto the market faster than anticipated and balance out the dynamics between buyers and sellers.
On Wednesday, the real estate association revised its projected housing price increase for this year down from 5.4 per cent to just 1.6 per cent over 2009.
The association predicted that the national average housing price will decline by 1.5 per cent by 2011, driven down by lower prices in the strong markets of B.C. and Ontario, while prices in the rest of the country will remain stable.
Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals, said this year’s prices have likely peaked, and should remain flat for the rest of the year before falling in 2011.
“Last year there was a pattern during the year — slow at the start, strong at the finish, and it’s going to be the opposite this year, almost a mirror image,” he said.
“Somebody who’s in a position to buy can take the time to make sure they get the property they want at a price they’re comfortable with,” he added.
The real estate association also lowered its 2010 national forecast for resale transactions by nearly 40,000 from its previous forecast of 527,300 due to a weaker-than-expected start to the year in British Columbia, Ontario and Alberta.
“The biggest contributor to the downward revision in annual sales activity would be British Columbia, where affordability has begun to bite into sales activity. Their first quarter came in weaker than expected and that’s expected to carry throughout the year,” Klump said.
The association now expects 490,600 units will be resold nationally this year through the Multiple Listing Service. This is still up 5.5 per cent from 2009.
A number of temporary factors pulled sales forward to the latter part of 2009 and the first part of this year, including anticipation of higher mortgage rates, tougher mortgage lending regulations and new taxes in Ontario and B.C. that will add thousands of dollars to the final price tag of many houses starting July 1.
The association’s revision came a day after the Bank of Canada announced it was hiking its key lending rate from an emergency low of 0.25 per cent to 0.5 per cent. Many economists predict that the era of historically low interest rates has come to an end and that rates are now on an upward trend.
Although mortgage rates have gone up and are expected to rise further, the association says the higher cost of borrowing will have a minimal impact on the market this year. Instead, sharp price increases earlier in the year appear to have been the main factor for the expected decrease in demand in British Columbia and Ontario.
Dunning said while some buyers “could drive themselves crazy” trying to calculate whether it’s better to get into the market now while mortgage rates are low but prices are high, or to wait until the opposite is true, it’s so difficult to get it right that homebuyers should just buy when the time is right for them.
Rob Hafer, regional manager at Invis mortgage brokerage, agreed that market timing is tough, and generally not worth the headache since a house is such a long-term investment.
“If you’re going to buy real estate, it’s a long-term investment, so if you can afford the home now … no matter when you bought within a couple years you’re probably ahead of the game anyway,” he said.
“If you can get in now and you can hold it long term, it’s always a good time to buy,” he added.
Klump said the market adjustment will stop short of venturing into a buyers’ market as “a more challenging pricing environment” will deter some potential sellers and limit the supply of available homes.
“A lot of people who were thinking they were going to clean up on their asking price are going to be faced with a lot of competition from other sellers out there, and ultimately will take their house off the market and try again when the pricing environment becomes more to their liking,” he said
But Dunning said balanced markets don’t last very long and said he believes market conditions will soon favour buyers.
“It’s usually always one way or the other, and we’ve had this immensely powerful sellers’ market and …there could be a very rapid transition so that it now becomes a buyers’ market.”
The Canadian Press http://news.therecord.com/Business/article/721499
