The market outlook is once again in favour of bonds. Personally, I find this perplexing because bonds prices are high. It seems unlikely that there’s room for them to rise further. Stock prices, on the other hand, always have room to fall and that may be the simple explanation. Unfortunately, the market is lower now than when the momentum shifted from bonds to stocks, so it’s unlikely anyone would have made money from executing that trade. Looking back, the TSX is down 0.11% and XBB is up 0.06% since August 13, 2012 (the signal). Once again, it appears to be time to overweight bonds.

Even the various asset classes, for those who are following the asset rotation, are struggling. The momentum of China stocks (FXI) is still reasonable, but outweighed by both gold (IGT) and bonds (XBB). I’ll be buying gold this week.

The stock market appears even more overvalued than last week. What’s worse is that the fair value estimate is based on a lower valuation, since stocks fell over the course of the week. If it truly is a reaction to disappointing earnings, this is likely to persist for through the quarter.

Market Outlook November 19, 2012

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