U.S. and Global Stocks
“Fear? What fear?” U.S. markets have brushed off coronavirus fears and continue to move to new highs. The available data from China and elsewhere suggest that although Covid-19 (the virus’ new official designation) is more worrisome than SARS and MERS, and could yet be disruptive, it is unlikely to become a global “black swan” event that would put a decisive end to markets’ current exuberance. We still believe that after a strong period of outperformance, markets are vulnerable to a correction, but of course, this is true at any time. Those oriented to tactical trading could sensibly refrain from adding exposure at this juncture, but those with a longer-term view should just remember the fundamentals. A correction can come at any time, and yet the basic picture underlying the U.S. stock-market rally is very much intact. Our belief is that continued attention to the ongoing thematic winners of the rally will be rewarded.
Europe
Europe, thus far, has not benefitted from Brexit relief, but seems to be headed into more malaise. Political succession to Angela Merkel has been thrown into question in Germany. The euro has dropped sharply this year against the U.S. dollar, which incrementally may lead to funds flowing into the U.S., into U.S. Treasury bonds and potentially into dividend-yielding U.S. stocks. This factor could contribute to U.S. rates remaining quiescent, and to appreciation for some U.S. dividend yielders, giving them an additional attractiveness for investors. Particularly those investors who require current yield might consider adding exposure to such stocks, as a “barbell” approach like the one we have advocated since last year.
Gold
With gold still marking time after its performance in the first half of 2019, and the prospect of a stronger dollar, it has fallen off the radar for many investors. We reiterate that although gold is not currently on the move, the yellow metal will increasingly attract attention in coming months as the sense of recession gets closer. Of course, as we always note, central banks are buyers. For these reasons, we continue to believe a gold allocation should be an indispensable element of your long-term strategy.
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