The U.S.
With most U.S. markets making new all-time highs, or (as in the case of the Russell 2000) breaking out to new recent highs, we remain fundamentally bullish, and fully aware that a modest correction of 1–5% may occur at any time. In keeping with our overarching strategic view, we would see such a correction as an opportunity to add exposure to U.S. stocks. Thematically, within the U.S., we favor stocks that have exhibited momentum throughout the year, and believe that if and when a correction occurs, buyers will step in — particularly institutions eager to show participation in the year’s winners in their end-of-year allocations. Some industries that have lagged, such as biotechnology, may generate interest in a push to year end, as asset allocators look for areas of 2019 underperformance which may see a rotation bring them into favor.
Europe and the U.K.
U.K. elections are coming up on December 12, and polling indicates strong performance by the Conservative Party. The electorate’s exhaustion with the long and tortured Brexit negotiations seems set to hand the Conservatives a mandate to push through Prime Minister Boris Johnson’s Brexit deal. The U.K. currency and stock market have suffered a long malaise due to the Brexit overhang, and we anticipate that both could perform well after a Conservative victory and a successful Brexit. In the long run, we are bullish on the U.K.’s prospects for “life after the EU,” and believe that U.K. dividend yielders may be particularly attractive.
While Europe remains troubled by all the fundamental problems we have pointed out so often over the years, it is possible that with Brexit done, some European countries may “see the light” and be willing to engage in some fiscal support for the European economy — particularly Germany, whose persistent surplus and unwillingness to spend have been cited by many analysts as a prime contributor to the EU’s economic woes. (Of course, there are many others, such as a somewhat hostile and restrictive regulatory attitude to disruptive industries, that are less likely to see substantive change.) Europe may be a trade in the event of more aggressive fiscal policies, but in our view, not a long-term opportunity.
Gold
Gold has not broken below the $1440 support area that several technical analysts have flagged as significant. As long as it does not break this support, we believe tactical gold holdings may be maintained. For now, there are less long-term tailwinds for gold than there were earlier in 2019, when the total global stock of negative-yielding debt was still growing.
In part, gold’s future performance may be bolstered by increasing inflation in the world in 2020 — not big increases, but increases nevertheless.
Thanks for listening; we welcome your calls and questions.
