TORONTO - It could be a grind on the Toronto stock market this week with little in the way of market moving data, while investors deal with concerns about sovereign debt and the latest move by China to slow down its vibrant economy.
But they are also dealing with a market that is looking tired after charging ahead about 31 per cent last year and much more than that from the lows of March, making taking some profits an attractive alternative.
"The second year of a bull market off of a big bear market low is always kind of iffy," observed John Johnston, chief strategist at the Harbour Group at RBC Dominion Securities.
"The big gains are in the first 12 months, and we're transitioning into the second 12-month period where the gains tend to be a bit more mixed."
The TSX closed 2.19 per cent higher last week, with most of the gain coming in the wake of a vow by the European Union to stand beside Greece as the country deals with a debt crisis that investors fear could turn into a default.
Investors hope to hear more details this coming week.
But there are other countries facing unsustainable debt levels in Europe, particularly Spain and Portugal, and investors want to see that the EU can deal with the whole problem, instead of dealing with one crisis at a time.
"It's probably not just Greece," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.
"And certainly while the original treaty that formed the EU didn't anticipate having to bail out individual countries - because they all had to meet strict criteria to join the EU - the problem they really didn't address is what do you do in this situation?"
Another cloud overhanging markets is China.
The country's growth has been one of the main drivers behind the global economy's recovery from the downturn. So investors were unsettled Friday when China moved to raise its reserve rate by half a percentage point, which would require large banks to set aside more cash, which in turn would leave less money to lend out.
While investors may have been dismayed at the news, analysts said it was the right thing for China to do in order to keep economic growth strong.
"They have been doing some jawboning to cut back on lending, and now they're increasing reserve requirements, they're not making big adjustments in their currency or in interest rates," Johnston said.
"They could make a mistake and we could have a sharp downturn in the Chinese economy - but that's not the strategy. They're shooting for some kind of moderation in growth that will help restrain inflation."
The rally on stock markets started almost a year ago and was based on the conviction that the recession would end later in 2009 and an economic recovery would be in place by the end of the year.
Now, it's a bit more difficult to see what this year is going to be like.
But Johnson pointed out that the important signals are at least pointing in the right direction.
"The economic numbers show a building case for sustainable growth, so it suggests the pessimists are too pessimistic," he said.
"But the numbers also don't say, this is going to rock and roll here."
Meanwhile, several large gold companies are expected to report earnings including Iamgold (TSX:IMG), Agnico Eagle Mines (TSX:AEM), Kinross Gold (TSX:K) and Barrick Gold Corp. (TSX:G).
Outside of the resource sector, grocer Loblaw (TSX:L) and WestJet (TSX:WJA) are also expected to report.
The Toronto stock market will be closed Monday for the Ontario Family Day holiday, while New York markets will be shuttered Monday for Presidents Day.