The U.S. stock market is clearly in a blowoff phase. Investors who think that this phase must necessarily be brief may well prove incorrect. Tens of trillions of investment dollars remain on the sidelines, waiting for an opportunity. We suspect that volatility, when it occurs, will be sharp and relatively brief. Some volatility may be occasioned by the U.S. elections in November; even if the outcome is not to the taste of market participants, the market may well swoon and then resume its move higher.
Momentum is performing strongly, and where there is the confluence of momentum with themes reinforced by covid — particularly in tech, communications, healthcare, and sustainability — Mr Market is suspending his usual interest in such mundane matters as earnings growth (or even just earnings).
While in some respects the environment resembles the Dot Com Bubble, in others it is quite different. Most of the companies being bid to stratospheric valuations have real business plans, real businesses, and real prospects, driven by real-world trends. The valuations may seem unsustainable, but the values do actually exist.
Investors in this environment have choices about how and to what extent they will participate, and will adopt widely different strategies. Some will join in the speculation as long as it lasts; others will ignore it and stick to more staid bread-and-butter options. We suggest that investors be clear and honest with themselves about their risk tolerance before they choose an approach.
Gold is breaking out, and we continue to advocate adding to gold on weakness, since we do not see any imminent changes to the dominant forces that we believe will draw investors to gold in the medium and long-term. Whether investors choose an aggressive or more conservative approach to their portfolio of stocks, they should not neglect their allocation to gold.
Thanks for listening; we welcome your calls and questions.
