Looking into the relationship between the EURO and the USD over the past few weeks has me concerned about the lack of stock being put into the news coming out of Europe at this time. The Yields of at risk countries (especially Ireland) are increasing in relation to German bonds, economic indicators are not showing a robust economy, and there is a threat of trade and resource competition from China (as seen in the China-Russian pipeline). While there are many important factors that are stemming the outlook of the US, possibility of Fed easing lending and bad housing numbers, it would be unwise to neglect the situation in Europe, which could again swell up and create another shock to the markets.
My new article looking at stocks and bonds and their historical relationship is now posted in the Articles section. I use a formula that shows the required rate of return, or allowable losses of the S&P to break even to the 10yr treasury over the same time period.
The below Bloomberg article offers more insight into the effects of the export driven recovery discussed in the Articles section. It discusses the factors that will be taken by individual countries to ensure they remain competitive in the global landscape. http://www.bloomberg.com/news/2010-09-15/japan-s-solo-run-on-yen-may-reveal-flaw-in-global-drive-on-export-recovery.html
The Bank of Japan’s intervention in the currency market followed by the stock markets flat traveling for most of the day is an example of investors being focused on news coming from the Fed, White House, and other world governments. Stock that are in favor seem to be continuing to climb because people are putting money where it is working, while other stocks are not moving out of a range. I believe that this action in the market will continue until there is more clarity from Washington or until earnings season is in full swing, which would put a more tangible measurement on companies' health.
With the markets getting choppy again it would make sense to sell some of your performing assets and wait in cash for better opportunities, preferably with a good yield. Building a small portfolio, say 5 or 6 sectors you believe will lead the recovery, with dividends will give you the opportunity to make gains over the long run despite the market direction over the near term or the length of the recovery.