The stock market performed about the same over the past week as it did over the prior couple of weeks. It was mildly positive and relatively stable. This improves the outlook for stocks. It seems less and less likely that there will be a highly volatile drop in value. At the same time, bonds continue to present better momentum and many investors may prefer to continue on the sidelines until a more positive outlook.

I am a little surprised, because there is continued uncertainty around a potential Greek default and the continued viability of the Euro-zone. But earnings reports appear to be positive and economic numbers, such as Q4 GDP in the US, are fairly encouraging. As an example, my fair market value estimate for the TSX has inched upward again. I still believe the TSX, as a whole, to be somewhat undervalued. Perhaps that explains (in part) the reduced volatility: all the bad news is already accounted for.

When I compare the different asset classes that I track, I see that gold (IGT) has the best momentum. I suspect that’s due to the backward-looking nature of my momentum calculation, and the fact the gold experienced a huge surge six months ago and a small jump three months ago. Because I worry that those are distorting the signal, I look and see that emerging markets (XEM) also show impressive momentum. Even though I know that second-guessing a working model is dangerous, I’m going to switch into XEM this week.

Market Outlook January 30, 2012

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