Home 2020 Savvy Investors Stick With Stocks, Adding Some Gold

Savvy Investors Stick With Stocks, Adding Some Gold


#investors #stocks #earnings #bonds #gold #Fed


The S&P 500 (NYSEARCA:SPY) is selling for 28X earnings. That is above the 25-yr MA of 25 but implies an equivalent interest rate of 3.6%. The 10-yr Treasury yield is less than 0.7%, and the Fed is committed to keeping rates low.

Stocks outperform bonds by a wide margin over any reasonable period and were Fed Chairman Powell to push up interest rates to combat inflation, the market value of existing bonds at current low coupon rates would dive.

For the regular participants those are risky bets.

Gold, like stocks, is highly volatile, rises when uncertainty ignites fear but has underperformed the S&P 500 over the past 25 yrs. The surge gold implies its price will decline relative to stocks when the C-19 coronavirus chaos passes, but maybe not.

Overinvesting in Real Estate is a poor solution. Over the past 25 yrs, the average return on residential real estate in the 10-largest Metro areas was 4.5%. Including dividends, it was 11.8% for the S&P 500.

The sustainable P/E has been steadily rising, in Y 1995, the 25-yr MA was 14. Simply, as the global population ages, it saves more, and that pushes down returns on safe-haven investments like Treasuries and drives up stock prices.

Currently, the 12-month forward P/E for the S&P 500 is about 22 but as soon as a vaccine emerges, prospective corporate earnings will surge. Investors who stick with stocks will be rewarded.

Advice: Remain invested is S&P 500 index funds and similar instruments, keep some gold for insurance.

Have a healthy day, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.