The market was not cooperative this past week, turning in negative performance for both stocks and bonds. What’s interesting to me is that stocks were mixed (of course), with some doing quite well, while (more) others did poorly. Ā Gold was also negative, losing almost 4% between Thursday and Friday. Further, a number of oil producers did poorly, likely affected by the volatility in oil price. Some companies must have also reported disappointing financial results, because my fair market estimate has dropped. The new range is from 7988 to 13,385 with 10,364 at the mid-point.

Having said that, I’m not expecting a correction. Interest rates are low, which is supportive of corporate profits; inflation expectations are low-ish (1.9%) and stable and this doesn’t feel like the top of the economic cycle. To be honest, it still doesn’t feel as though we’ve recovered from 2008. Stocks still have far more momentum than bonds, suggesting that a balanced portfolio should overweight stocks. Stocks have shown a clear advantage over the past five weeks, but the return has been essentially flat over that period (which still beats the -0.77% of bonds).

In my asset rotation model, US small caps (IWM) continue to be in favour, and they grew in value by 3.58%. In second place are European stocks (XIN), which I own in my CDN$ accounts.

Market Outlook February 18, 2013

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