Thursday, March 21, 2024

Come Hell Or High Prices! And, Gold and Stocks Hit Highs Simultaneously -- That A Good Thing?

Stocks, at historically high valuations, seemed a bit jittery heading into yesterday's Fed rate decision and Powell’s press conference... And, per the below, rightfully so.

YTD % change in the price of a gallon of gas:

of a barrel of oil:

of a plateful of food:

and a copper pipe:

Nevertheless, and while there's much I can ramble on about yesterday's Fed decision and message(s) from the presser, suffice to say that Chairman Powell made it clear that the Fed intends to cut rates this year come hell or high prices... And the equity market loved it!

Here's a 2-week SP500 futures chart (yesterday circled):

Now, don't get me wrong, I'm certainly not complaining, as we continue to maintain sufficient equity exposure... However, and make no mistake, the Fed continuing to juice markets at current levels, and given overall macro conditions, is... well, let's just say that it's not something to go chasing after.

Let's peek at another chart that we're also not complaining about -- as gold (also hit a new all-time high yesterday) is a key position in our core portfolio -- but represents yet another reason to not back up the truck to the stock market right here.


Per Bloomberg's Tatiana Darie:
"It’s rare for stock and gold prices to be near record highs simultaneously. Now is one such moment — and it’s not a good sign for equities.

Gold, of course, typically acts as a haven during times of
financial stress, rising when stocks fall. But it’s also not
particularly unusual for the two to rise together during periods of relative stability...

Yet it’s very rare for gold and stocks to push toward new
peaks in unison. In fact, since the US dollar was untethered
from gold in the 1970s, it has happened only a few times: During the the inflationary spiral of the early 1980s, in the run-up to the Great Financial Crisis and in 2020, the first year of the pandemic.

During the pandemic, the unprecedented stimulus cranked out by central banks and governments inflated assets of all stripes, so that case doesn’t seem to hold many lessons for the current environment. Two other instances — at the start of the 1980s and before the financial crisis — may be more instructive.

Both were arguably times of speculative excess. In late 2007, gold and stocks were heading to peaks together just after the Fed just started cutting interest rates. Only in hindsight was it evident that gold buyers had it right — and stock investors wrong — as the economy ultimately collapsed into a downturn.

That was also a period when policy lags were quite long. It
wasn’t until 16 months after the Fed’s rate peaked that stocks cratered, and it took 18 months until the recession started.

It’s only been 7 months since the Fed stopped raising interest
rates this time around, so the full impact of its monetary
policy probably hasn’t been fully felt.

The two asset classes came close to marking a record high
together back in the early 1980s, and losses for stock investors followed."
Stay tuned...

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