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At the Bell

More volatility in store Add to ...

This week will be light on new economic data and will also mark the late stage of fourth-quarter earnings reporting season, leaving the markets open to less-predictable forms of influence.

That's not necessarily a bad thing, given that the bulls have out-muscled the bears in recent sessions. But it does bring greater volatility to the fore and that isn't helpful for the average retail investor.

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Stock markets benefited last week from speculation that Greece was finally on the road to fixing its debt problem by announcing austerity measures, issuing €5-billion ($7-billion) of bonds in a well-received sale, and working to get Germany and possibly the IMF onside as needed. It's highly unlikely, however, that the markets have felt the last sting of the sovereign debt crisis, or for that matter Greece's toxic finances. After all, how much trust can you put in a government that for years meticulously hid its financial mess from the other 15 members of the euro zone and continues to oversee a system lubricated with bribes and squeezed by systemic tax evasion?

Stock markets remain extra vulnerable to shocks like Greece these days because trading volumes continue to lag below normal levels. Almost all sessions on the S&P/TSX this year have closed with less than 200 million trades, compared with a range of between 200 million and 300 million a year ago. On the S&P 500, volumes have been lower than 1 billion, compared with more normal levels of between 1 billion and 1.5 billion.

Low volumes aren't a concern when the news is good, and earnings season has delivered a steady stream of upbeat reports. Companies on the TSX index have posted a 38-per-cent rise in earnings compared with last year's relatively weak numbers. "That's a bit below earlier expectations, but a healthy performance nonetheless, marking the end of the year-long earnings recession," says Peter Buchanan, senior economist with CIBC World Markets Inc.

But thinner than normal trading patterns pose a problem when the news is bad. Technical analysts say the risk of low volumes is that fewer buyers will step in to absorb the shocks, leaving markets vulnerable to greater selloffs. For the moment, sovereign debt and unemployment are among the most likely forces to deliver blows to the markets.

Late last week, investors breathed a sigh of relief when U.S. job losses for February came in at 36,000, rather than the 50,000 forecasted. But David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc., warns that job losses are still far too high today when compared with other recovery periods. Normally, in the eight months following a bottoming in output, employment rises by one million. But right now it's down by that amount, he says.

Canada, of course, is showing much better employment data. The latest will come Friday, with economists expecting 18,000 new jobs to have been added in February - not enough to budge the unemployment rate of 8.3 per cent and probably not enough to affect the direction of the market.

Among the economic data coming from the United States this week, the Commerce Department will release monthly international trade figures on Thursday and retail sales numbers on Friday. Retail activity is expected to have declined by 0.2 per cent from January, but investors will likely lay the blame on severe winter storms, sparing stocks a beating.

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