As with last month, I delayed this update a few days to see if we might gain some clarity that would warrant some change in our allocation. Alas, no such clarity has emerged and so, as it has been since August, the risk budget remains unchanged this month. Indeed, as last month, the entire portfolio is unchanged. For the moderate risk investor, the allocation between bonds, risk assets and cash remains at 50/45/5. While the yield curve did steepen ever so slightly, it was for the wrong reason and not enough to justify a change in any case. Credit spreads continued to narrow but narrowing spreads were already factored into our current allocation. Earnings have improved somewhat and we may even see a slight rise in S&P 500 earnings this quarter, but we are far from any valuation that would warrant buying US stocks. Momentum has shifted on shorter time frames around various asset classes but long term momentum measures haven’t changed.

It was tempting to move to a more conservative stance in advance of the election but there is no way to predict the outcome or the market reaction. Some of the economic data released over the last month could be construed as improving or maybe not getting worse is a better way to put it but the big picture hasn’t changed materially. The Chicago Fed National Activity Index (a very broad measure of economic activity) improved but is still below 0 and the 3 month moving average continues to worsen. GDP was better than expected but primarily due to items that won’t repeat – a surge in soybean exports and an inventory build in the face of already high inventories. Consumer Sentiment/Confidence eroded significantly on the month, probably a reflection of election anxieties. Frankly, the biggest news over the last month has been the change in inflation expectations but we anticipated that months ago and reduced the duration of our bond portfolio. In short, while there were some potentially significant changes if short term trends become long term ones, that hasn’t happened yet and so I won’t make any changes.