August 28, 2010 Stock Market Outlook

Bond yields have hardly moved, while stocks have advanced. Prices, however, were volatile, falling to around 11,550 (the same level as 200 days ago) before climbing back to near 11,900. Although corporate earnings were strong, GDP growth has slowed from earlier this year, which is creating uncertainty and probably explains the slightly elevated volatility.

The market seems reasonably valued, but not a screaming bargain. With a long-term view, stocks are probably a good value presently. There is no clear buy signal, as stocks are far from surging forward. In fact, bonds have performed better than stocks over the last couple months. Summer vacation is drawing to a close, in North America and in Europe. It is likely, with the return of investment managers and stock traders, that the markets will define a direction in the next week or two. If uninvested cash is looking for a home, it could drive markets higher. But if worries about profitability and the stability of the economy dominate, the market could slip back 10% or more. Only time will tell.

The 5 year mortgage rate is down again, now at 5.39%. They have been falling since being at a high of 6.25% at the beginning of May 2010. At 5.39%, the current rate is equivalent to the rate in February. It fell as low as 5.25% before jumping up in May and June of this year.