I’m satisfied that the market correction is over. From the top to bottom, the TSX composite fell by almost 11%. It is very normal to experience a correction of this magnitude every year or two. (And very normal for it to arrive in October, for whatever reason.) Stocks have regained their momentum, although not universally across market segments. Real estate seems to have the advantage at present, which is a defensive stance.

The positive week that stocks experienced, gaining 2.56%, doesn’t undo the damage of the correction. That makes it a good time to buy, as everything is (likely) on sale. In a balanced portfolio, stocks should be target-weighted, compared to bonds, for the present.

Real estate stocks (XRE) have the best momentum among asset classes that I track. Only Hong Kong stocks (EWH) and bonds (XBB) also have positive momentum, and they are roughly equal at this point. As a side note, Brazil stocks are in the toilet. How do you say “Sorry, guys” in Portuguese?

Among individual stocks, Gilead (GILD) in the US continues to appear attractive. I sold it for cash during the correction, but that turns out to have been a mistake. I initially bought it at $90.40 (in mid-July), then sold at $102.06 on Oct 17, when it was clear that markets were correcting. I avoided the bottom ($96.16), but I also missed the rebound and it closed at $110.71. Not only did I miss out on 8.5% growth, I also paid a transaction fee to get out, and I’ll pay another to get back in. In this case, buy-and-hold would have served me better.

Market Outlook October 27, 2014

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