The TSX ended last week up 231.46 points or 1.88 per cent after the U.S. Federal Reserve announced an open-ended plan to spend US$40 billion a month on a new round of bond purchases. And it will continue to do so until the job market shows substantial improvement.
That jump came on top of a 2.66 per cent gain the previous week after the European Central Bank announced a plan to purchase government bonds in order to keep borrowing costs under control for some of the most vulnerable eurozone members, such as Spain and Italy.
"So the general conclusion is the market got what it wanted or else we wouldn't be trading where we are," said Gareth Watson, vice president investment management and research at Richardson GMP Ltd.
"At the same time, the next question is, what’s next? Because there ain't going to be a lot of stuff coming out over the next month until we get into reporting season."
The strong showing has left the TSX up 4.55 per cent for the year, while the main Toronto index has surged 10.25 per cent from the lows of the year racked up in early June.
And that suggests that while the positive tone will stay with markets for awhile yet, it could be time for a pause.
"We’ve had quite a move from the summer lows, we have come a long ways on this," said Bob Gorman, chief portfolio strategist at TD Waterhouse.
"In the pit of my stomach, I think this is all fine and dandy, we are well-positioned here, but at some point we will probably have a reminder that there are risks out there."
One thing that concerns Gorman is where a widely-watched measure of market volatility stood at the end of last week.
The VIX futures — which translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period and then annualized — are often referred to as a fear index.
In October, 2008 in the wake of the financial sector collapse, the S&P VIX had rocketed as high as 89 in the midst of the market sell-off.
On Friday, it stood at about 14, well below the average reading of 19.04 that stood between 1990 and October 2008.
And to some market experts, this spells complacency.
"I wouldn’t be too surprised to see this ultra low VIX volatility/complacency give way to some renewed fear at some point," added Gorman.
"Wouldn’t surprise me a bit."
Meantime, Watson thinks that the focus will return to Europe now that Fed chairman Ben Bernanke has pleasantly surprised markets.
"I think people will say now our focus is back on Europe and time to put some of these programs in place and try and get yields lower and so far, it’s working," he said.
"But at some point it might not work and that’s where the focus might turn back to in the near future. I don’t think it’s going to be on the United States as much."
Spain, which is the eurozone’s fourth largest economy, is widely-expected to make a request to use the new ECB bond buying facility at some stage but the conditions attached have yet to be determined.
Its finance minister Luis de Guindos said the government was readying to present a bold new economic reform plan by the end of the month.
The Spanish government has shown its unwillingness to bow to conditions attached to any help, and its plan could allow it to say that it’s already meeting any austerity and reform measures implicit in a deal.
And Greece is currently being assessed by international debt inspectors.
If the inspectors decide it hasn’t done enough to meet the strict conditions of its bailout, vital funds would be cut off and it could be forced to default on its mountain of debt, potentially triggering another bout of turmoil in the markets and its exit from the euro.
Meanwhile, the economic calendar is thin for this week.
The latest Canadian inflation data comes out Friday. Statistics Canada is expected to report that the Consumer Price Index rose 0.3 per cent in August from July, which would amount to 1.3 per cent year over year.
In the U.S., traders will look to continued signs of improvement in the housing sector. Economists expect housing starts for August came in at an annual rate of 765,000, up from 746,000 in July.
CIBC economists think it will come in even higher, at 775,000, a post-recession high.
"Building permit applications and homebuilder confidence have soared in recent months, suggesting an imminent uplift in starts as well," said CIBC World Markets economist Andrew Grantham.
On the corporate front, traders will focus on package freight company FedEx, which is viewed as an economic bellwether. It delivers quarterly earnings on Tuesday.
However, expectations are already diminished after the company reported Sept. 4 that it expected to hand in lower than expected earnings because "weakness in the global economy constrained revenue growth . . . more than expected."
It said it expected to earn between US$1.37 and $1.43 a share for its fiscal first quarter, less than initial estimates of profit of $1.45 to $1.60 a share.