Market Outlook November 21, 2011

Volatility remains persistently high, closing the week at 32. I’m less concerned by the level, but more concerned by the fact that it is not trending downward. Stocks lost more than 3% this past week, moving the market valuation to a level where it appears undervalued. I had thought that stocks would continue their recovery on a fairly smooth trajectory, but that has not been the case. The market seems to be predicting corporate profit growth of less than 0% (-0.87%) over the next 12 months.

Bonds continue to have the greater momentum, and a portfolio that is balanced between stocks, bonds and cash should still be overweight bonds. Among all asset classes (that I track), gold (IGT) continues to present the best prospects. Other assets sometimes have a couple weeks of growth, only to reverse direction and give back the gains.

While I’m not ready to commit money to equities by selling gold, the market looks cheap. Investors who are patient, with a long time horizon, or who don’t mind watching their investments go down before going up, may be wise to buy now. The markets have already made a low on Oct 4 (of just under 11,200) and seem to have reversed course and begun the recovery. There are plenty of bargains, for those with the stomache for them.

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