Bond yields fell last week, meaning that bond prices rose (very slightly). As you might expect during a market correction, gold also rose. Stocks, however, were basically flat for the week. That means very little has changed since last week, and bonds continue to enjoy a slight advantage over stocks. I’m not going to go so far as to predict that the correction is behind us. That remains to be seen, but the market has fallen 9% from it’s (weekly close) high, which is a pretty normal correction. Often, each calendar year produces at least one market correction, of 5% – 10% in 1/3 of cases and of 10% – 15% in another 1/4 of cases; 1/10 of the time it’s less severe, and the other 1/3 of the time it’s worse.

Comparing momentum between asset classes, bonds have given up the lead to gold (IGT). Bonds and gold are only slightly positive, and they are the only two asset classes with positive momentum at all (unless you include cash). Both would make suitable, defensive holdings for the coming week.

In my accounts, I sold my momentum holdings for cash last week. I’m not looking to jump back in at this point, and plan to wait for a better opportunity to re-enter the market.

Market Outlook October 20, 2014

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