Market Outlook October 3, 2011

The past week was positive for stocks. Not very positive, given the large losses we have experienced and the large gains that would be needed to make up for them, but positive nonetheless. Volatility remains elevated and there is little indication that markets are about to rebound. Momentum for stocks is still much weaker than for bond; a portfolio split between stocks and bonds should continue to be overweight fixed income. Gold continue to look like the best holding at the moment, although its momentum is drying up (we appear to have missed the top) and bonds are almost as attractive.

The economy may not be as bad as it seemed. GDP growth came in higher than expected, as I understand. Having said that, my fair value estimate for the market slipped, even as the market price rose. At the same time, the market appears to be 5% undervalued at present.

We’ve survived September. It looks likely that we’ll also want to sit out October, as the typically two worst months appear to be meeting expectations. I’m wondering if November will the beginning of recovery and positive growth. I plan to be patient at least until then.

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