I had hoped for better. I was really hoping that after September and October ended, the high volatility and negative stock market performance would end also. Historically, the period of November to May has been relatively strong for stock markets. That doesn’t mean that they turn on a dime, switching from negative to positive as the calendar turns from October to November. But volatility remains somewhat elevated (between 30 and 35, where 20 is normal during a bull market), likely due to uncertainty around the situation in Europe in general and in Greece in specific.
Another sign of the prevailing lack of optimism is the fact that the stock market is discounting 12 month earnings growth of just 3.1%. Remember a year ago when they were discounting earnings growth of 30% and 40%? I suggested at the time that it was possible, and a few companies have achieved it. But not all companies have enjoyed continuous economic growth, and there is still much uncertainty about what the next 12 months will bring. This translates into P/E compression, which explains why some companies, such as the banks, are trading with relatively low P/E ratios (under 12) and high dividend yields (near 5%).
Stocks ended the week lower in value than they began the week. The negative return impacted the momentum, where bonds continue to hold favour. In fact, gold (IGT) continues to offer the best momentum out of the asset classes I watch. Others continue to be positive, but gold appears the most favourable.