Market Summary
The U.S.: Stocks, Gold, Cryptos
Since we wrote last week, a trifecta of disappointing Fed communication, trade-war escalation, and self-reinforcing recession fears have accompanied an S&P 500 decline of about 4.7% as of this writing, and a strong rally in bonds (as interest rates decline) and gold.
The correction was not a surprise, and given the strength of the U.S. stock market thus far in 2019, many technical analysts were calling for a decline to relieve its overbought condition. We have been increasing cash positions for clients since July in anticipation of such a correction; we have been increasing gold positions for many months.
We have taken some profits in gold for our more tactically oriented clients. We believe that gold will likely correct near-term, but that longer-term it can move much higher. We have noted that during the current correction, bitcoin has performed less like a risk asset, and has risen with gold, while in previous corrections, it has often declined with stocks. We watch bitcoin’s behavior during stock-market corrections closely to judge the psychology of investors and speculators surrounding cryptocurrencies. So far, it has not been a consistent risk-off performer.
Current investor psychology is turning from regarding gold simply as an inflation hedge, to regarding it as more of an all-purpose “stupidity hedge” against the ill-considered actions and policies of governments and central bankers.
While we have been stating for some time that investors should begin to give more attention to gold and their gold allocation, we are not fundamentally bearish on U.S. equities. The present correction may become deeper, but economic and financial conditions in the U.S. remain strong, and as Bank of America analyst Savita Subramaniam notes, thus far, earnings are holding up and we have not entered an “earnings recession” like that of 2015.
Therefore, as the correction unfolds, we will use the opportunity to add to positions — for growth-oriented clients, primarily in tech-related growth names, and for income-oriented clients, in attractive, solid dividend-yielding stocks.
Outside the U.S.
From our perspective, the U.S. remains “the only game in town,” for now. In the long run, opportunities may emerge, particularly in India and Brazil, but under current conditions, we see no compelling reason to diversify globally. Trade and growth concerns weigh everywhere — trade in emerging markets, and growth in Europe.
Thanks for listening; we welcome your calls and questions.
