Stocks continue to struggle. The past week saw the TSX slip back over 1%. Even gold had a negative week. Bonds were the only area that weren’t negative, although yields on government bonds rose slightly. That implies only government bonds rose in value, and corporate bonds fell, like all other assets. There seems to be prevailing negativity among investors.
Bonds continue to be in favour over stocks. My model still prefers gold over other asset classes, but I’m starting to think it’s due to performance that’s further in the past. The last four weeks haven’t been positive for gold. But because of the standard inverse relationship between gold and stocks, I’d prefer to continue to own gold.
My fair value estimate of the stock market has risen again. The market appears to be 5% undervalued, but more interestingly, it is currently discounting 12 month forward earnings growth of -1%. It appears that the current market slump has much more to do with P/E contraction than falling earnings.