The stock market is well and truly in a mini-correction. Over the past three weeks, the stock market has fallen by 5.24%. In mid-September, I was hoping this would be a year where we could look and September and October and say: “See? There’s nothing spooky about these two months in the market. It’s all just superstition.” But it looks now like a reasonable tradition, and I’m not prepared to bet that the correction is ending. The short term outlook is risky.

Stocks and bonds have roughly equal momentum (or lack thereof), which indicates that a balanced portfolio should return to target weightings; it no longer looks profitable to be overweight stocks. In fact, comparing asset class momentum, bonds are the only one to present positive momentum. It’s time for investors to look for safety and take risk off the table.

Very few individual stocks have any positive momentum. This correction is not confined to a single or a couple sectors, but appears to be affecting the majority of stocks. A couple exceptions (disclosure: I own some of these) are Gilead (GILD) and Nike (NKE) in the US and CP (CP) and Valeant (VRX) in Canada.

Market Outlook October 6, 2014

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