Market Summary
The U.S.
The U.S. stock market is having a modest pullback after touching old highs. Given the global backdrop of central banks and indebted governments with no appetite for higher rates or stronger currencies, we believe that stocks will have a long-term upward bias, supported by low interest rates from U.S., Japanese, and European central banks, albeit with volatility. Many other central banks in both the developed and developing worlds will be engaging in efforts to stimulate their economies and markets, and those efforts will likely go beyond low rates and could involve QE, stock buying, or other actions. Many analysts believe that the U.S. stock market has further appreciation ahead in 2019 — perhaps after a (relatively) quiet period until later in the year.
Emerging Markets and China
Here our opinion remains the same — there is potential in some emerging markets, but the hoped-for resolution to trade conflicts may be some way off, and in the meantime, there will be volatility surrounding the negotiating process. Nimble traders could try to exploit that volatility, but we believe investors would be better served by adopting a considered long-term view and sticking to it.
Gold and Digital Currencies
FB’s announcement of its digital currency project has helped light a fire under the whole digital asset space. The rally was already underway before that announcement, however, and we note that this time, unlike the 2017 run-up, there is more infrastructure in place for institutions to buy and hold digital currencies. Of course, as we’ve observed, there’s still a lot lacking in regulatory oversight and market transparency. Our recent observations are that cryptocurrencies trade with risk assets, and so if the overall market environment remains benign, the crypto rally could continue.
Gold continues to be attractive both technically and fundamentally. The fundamental supports for gold are the same as those mentioned above for stocks — global central banks and governments are strongly disposed to lower rates and lower currencies. The trend in the U.S. is particularly important in this regard. In addition, many central banks, including Russia’s, China’s, and Turkey’s, are aggressive gold buyers. Globally, many government bonds still have negative yields; with zero yield and a small storage cost, gold is comparatively attractive. With gold having broken out above long-term resistance, we see the possibility of continued appreciation.
Thanks for listening; we welcome your calls and questions.
