Market Outlook June 27, 2011

It’s tough to be optimistic about investments and the market these days. It seems that there’s one piece of bad news after another. Stock are not doing very well, and I mentioned a couple weeks ago that bonds have better momentum. That is still the case. In a portfolio of stocks and bonds (and cash), an investor should be overweighting bonds at this point.

However, if a person were switching between a larger number of asset classes, they would be presented with a more challenging choice. Gold is no longer the favourite, having turned in a negative return last week. It was bypassed by Real Estate (XRE), but only by 0.01%, so I will continue to own gold. Having said that, real estate has been a close second for some time.

The fair value of the stock market has dropped, as earnings and other economic variables have come in worse than expected. It’s starting to feel like this might be more protracted than a mere correction. Economists are talking about a mid-cycle slowdown. Only time will tell, but the smart money is in income-producing stocks or out of the market entirely.