Interest rates have remained even compared to last week. Bonds have held their ground. Momentum continues to favour stocks, but the differential is eroding. Stocks have been falling, while bonds have remained steady. This has been the case for the last four weeks and, with summer coming on, I am starting to worry that stocks no longer present a clear advantage. It may soon be time to head for the sidelines and own bonds, so that we can enjoy our summer vacation, relaxing instead of worrying about stock market levels.
Stocks have fallen at the same time as the fair value bounds have risen, so they appear to offer opportunity. Saying that, however, doesn’t mean they can’t become cheaper going forward. Not all companies are reporting improved earnings, although many are. Earnings, in aggregate, haven’t recovered to 2008 levels, while stock prices have come quite close. There could be even greater bargains ahead.