Market Outlook May 23, 2011

Interestingly, the stock market looks healthier at the end of this week than they did at the end of last week, even though there hasn’t been any material movement higher. I think the reason for this is that markets had dropped a few months ago, so comparing the current level to the past level suddenly looks better.

Having said that, interest rates have been steady. Stocks are definitely preferable to bonds at this point. Based on the Asset Rotation idea I posted last week, I’ve been looking at the internal momentum of different asset classes. However, something like “small cap equities” is still just a sub-set of equities, so I’m not sure it can realistically be called an asset class. Having said that, the place to be within equities, for the past four months or so, has been small cap equities. That appears to be shifting to real estate (equities).

The past three months have felt negative in the stock market, especially when it recently made a new low under 13,400. Having said that, it’s really been a lot of volatility over some sideways movement, given that the current market level is still above the average in January of this year.