Checking in on the Stock Market and our Asset Allocation Model

I'm back in the saddle this morning after spending a week traveling the Canadian Rockies with two of our grandchildren.  Surprisingly, the stock market didn't crash, as it so often does when I'm away on vacation.


As we review this 2012 "correction," it has certainly been less painful than that of 2010 and 2011.  It hasn't done a lot yet to make the public investor feel that much better, but we are a stone's throw to that old high of last April.  During my week of absence, we have seen some different patterns starting to evolve, as last week saw the much beleaguered Energy, Industrial and Technology stocks rally and the defensive and consumer stocks underperform.  But one week doesn't make a trend, and the good news is that the fuel for this market is still very prevalent, and if anything, is still growing.

Please remember our often stated comment: "Bull markets don't end until the Fed wants them to."  And today, higher stock prices are still being craved.  You can see from our Monetary Composite gauge below how powerful monetary liquidity is still.  You can also see that today the Fed is still in the emergency mode and stocks simply DON'T go down when the monetary liquidity is as powerful a stimulus as it is now.


With that said, the election is getting closer and closer, and we'll continue to watch the developments in that area, but only with our peripheral vision.  Our focus, instead, will remain on our quantitative Asset Allocation Model that helps us picture tomorrow's headlines today.

Don Hays

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