How are things looking for the markets right now? Advanced warning, this is going to be a chart fest of epic proportions.
With some stocks bursting up thousands of per cent in a day, the Nasdaq breaking new highs but most stocks actually floundering, it’s pretty hard to paint a broad overarching picture.
The US stockmarkets are up a few per cent, and the tech-heavy Nasdaq (red line) outperformance of the S&P 500 (orange line) hasn’t continued despite a lot of news stories suggesting it has.
Britain’s FTSE 100 (blue line) is down a few per cent, so US outperformance did continue in that regard.
Meanwhile, gold (gold line), in USD terms, has outperformed all three.
The interesting marking post is that the S&P, while still below its February peak, is pushing to achieve YTD gains (year-to-date), which means that despite everything that’s happened, investors who bought on 1 January 2020 would be sitting on positive gains.
So far though, it has failed to consolidate around that 3,250 level, which some technical analysts see as a potentially significant psychological barrier.
Yesterday, despite the announcement of a 9.5% quarterly fall in GDP (the largest since WW2), and President Donald Trump tweeting a suggestion that the election be delayed, US markets were flat or up. It’s not that there is only good news, it’s that investors are completely unwilling to pay the bad news any attention.
In the US, no sector has outperformed really, though energy (dark green) has been a notable underperformer in July again and it’s interesting to see that technology (lime green) has not outperformed its peers, again contrary to many popular narratives.
Value, having briefly outperformed back in May, has failed to hold its lead as growth and quality stocks have caught up in June and July.
Meanwhile, US government bond prices (blue) haven’t fallen away as stocks have risen (red), suggesting that bond investors are buying into the confidence we are seeing in some equity sectors:
Oil fell into negative territory back in March and was the biggest story in financial markets, but having rebounded to $40, it hardly moved an inch in July (the arrow).
But the real story, from the last couple of weeks especially, is the breakout of gold, silver, and you could include cryptocurrencies in that.
Our own brilliant editor of The Fleet Street Letter Wealth Builder, veteran fund manager Charlie Morris, put it this way:
Source: Charlie Morris, on Twitter
The interesting discussion is how bitcoin performs as an asset. Is it a safe haven in times of market turmoil? Or is it matching precious metals’ role as a hedge against future inflation? And which factor is driving the latest surge?
If we take these assets and zoom out a bit, this is what we get:
You can see the surge in silver (grey line), and bitcoin (red line) were especially fearsome in the last couple of weeks, though they failed to hold their value during the market turmoil earlier in the year.
Gold (gold line – priced in pounds) meanwhile did hold its value much better back in March, and its surge recently was more modest, but the result is almost identical performance YTD with silver, while bitcoin takes pole position with a 56% rise since 1 January 2020.
It’s also worth pointing out that except for the Nasdaq, the global stockmarket rallies ended on 8 June, and most are now below where they were at that point seven weeks ago.
Un-coincidentally, that was the same week in which the US Federal Reserve’s asset purchases peaked (blue line). S&P 500 (red line).
Source: Sven Henrich, on Twitter
Interestingly, looking at the same six indices over a much longer time period (five years), what we see is that only the American ones (I’ve added the Nasdaq – yellow line) have delivered strong gains. And that’s before accounting for inflation – which has accumulated at around 2% per year depending on which country you’re in, reducing gains/losses even further in real terms.
Meanwhile, global coronavirus cases continue to rise:
Source: Remi Tetot, on Twitter
And closer to home, we are seeing upticks in Spain and Belgium, which is leading to some reasonable concern here in the UK, including a tightening of lockdowns across the north of England.
To summarise, I’ll use three final charts. One from Ray Dalio, one from me, and one from our man Tavi Costa.
I’ve warned, alongside increasing numbers of others, about the rising likelihood of inflation in coming years.
Well nothing has captured why so well as this chart from Dalio, who is arguing that an 80-year cycle has reached a turning point:
Source: The Changing World Order
As a result, I and many others have been keenly advocating precious metals and miners.
Well, to follow up on the five-year chart of seven indices from above, in which was saw that only American indices have delivered anything worth having, here’s an edit of it.
This time, it includes the one asset that can protect you from inflation, and from lackluster stockmarkets outside of the US.
Gold has outperformed the Nasdaq – which is in a record bull market and making every sane investor tear their hair out in jealousy, resentment and frustration.
Gold is more than just a hedge now.
It’s no more inert than the 100 biggest companies listed in the UK.
The variations of silver and miners offer more volatile solutions, and gold can of course be bought in any currency – the more the currency devalues, the better gold does relative to it.
We are in what our UK Uncensored interviewee, Tavi Costa, calls the Global Synchronised Debasement.
Source: Tavi Costa, on Twitter
It’s a race to the bottom.
Editor, UK Uncensored