|Bid||109.06 x 4000|
|Ask||110.11 x 1100|
|Day's Range||109.88 - 110.07|
|52 Week Range||107.53 - 113.69|
|PE Ratio (TTM)||N/A|
|Beta (3Y Monthly)||0.92|
|Expense Ratio (net)||0.20%|
Fed policymakers are watching job data closely, as the data gives the Fed insight as to whether the US economy (SPY) (IVV) is strong enough to withstand interest rate hikes. The Fed raised interest rates four times last year and signaled two more hikes in 2019, which is in contrast to the market’s expectation of no hike. The Fed has remained very positive on the tight labor market and has maintained that increasing rates should keep inflation in check.
Wage growth will likely be the most closely watched component of the US (VOO) jobs report. While the other components of the jobs report have shown a firm labor market, wage growth has been a missing piece for a while. While wage growth had disappointed market participants for the last few months, November’s wage growth was more or less in-line with expectations.
A major factor weighing on gold prices this year was the Fed’s tightening cycle. Since the Fed started the current rate hike (BND) cycle in December 2015, it has hiked rates nine times, with the latest hike in December. If inflation (TIP) remains under control in 2019, the Fed is not expected to move much.
Another concerning statistic that came to light during the Bank of America Merrill Lynch’s Fund Manager Survey was that investors made the largest ever one-month rotation into bonds (BND). As reported by CNBC, the survey said, “Investors are approaching extreme bearishness…This month’s survey [found] the biggest ever one-month rotation into the asset class.” The bond allocations rose 23 percentage points to net 35% underweight, the highest allocation to bonds since the Brexit vote in June 2016. The allocation to bonds also rose amid a drop in inflation expectations.
According to CNBC, Goldman Sachs (GS) analyst David Kostin released a research note on December 14, in which he said, “Investors should increase their defensiveness given our forecast for heightened risk and fat tails.” The bank’s conviction for the markets next year is mixed and the firm advises clients to protect themselves by owning “high quality” stocks. GS also believes that a lot of the movements in the markets in 2019 will depend on investor perception of the longevity of the current economic expansion. To be in a late cycle of economic expansion typically means growth slowing down and margins contracting, accompanied by higher inflation (TIP) and volatility (VIX).
Could Market Risks Bring Investors Back to Gold in 2019? The Federal Reserve Committee plans to meet for the last time in 2018 on December 18–19. The committee is widely expected to raise interest rates (TLT) by 25 basis points, marking the fourth hike this year.
The US jobs report for November was released today. The job additions came in at 155,000 as compared to consensus expectations of 198,000. While job additions in manufacturing remained strong at 27,000, construction net adds declined to 5,000.
Fed policymakers are watching job data closely, as it gives them insight as to whether the US economy (SPY) (IVV) is strong enough to withstand interest rates hikes. The Fed has already raised interest rates three times this year. The Fed is expecting one more hike in December.
Wage growth will likely be the most closely watched component of the US (VOO) jobs report. The metric has long been considered a missing piece of the otherwise strong labor market. While wage growth had disappointed market participants for the last few months, October’s wage growth was not disappointing.
The answer depends on our understanding of Fed Chairman Jerome Powell’s comments. Now, some may argue that since Powell said “just below” neutral in his prepared remarks, he was trying to give a dovish message to the markets. On the other hand, what Powell said yesterday and what he said at the beginning of October may not be that different.
Could Gold Be the Best Bet amid Increased Economic Uncertainty? Bank of America (or BofA) analysts contend that gold prices (GLD) should surge over the next year. The firm stated that higher real US interest rates, a strong US dollar (UUP), and equity market volatility have kept a lid on gold prices year-to-date.
Wage growth will likely be the most closely watched component of the US (VOO) jobs report. In September, wage growth was in-line with the market expectations at 2.8% year-over-year. Economists expect wage growth momentum to continue as the unemployment rate remains low and job additions remain buoyant.
Since equities have slumped in October, investors are reassessing the price they should be paying for the forward earnings. A stock is expensive or cheap only relative to the future earnings growth potential. Since investors are concerned about the future earnings growth (SPY) in 2019, valuations have also started to weigh on investors’ minds. Investors are realizing that the interest rate environment has shifted from being benign to reflecting tighter liquidity. Equities’ valuations are at a level where a small spark is enough to spook investors.
The US consumer price index (or CPI) for September was released today at 8:30 AM EST. The inflation numbers were weaker-than-expected, with the CPI rising just 0.1% sequentially compared to 0.2% expected by economists. In the 12 months through the end of September, the CPI rose 2.3%, which was lower than a 2.7% rise in August.
The Dow Jones Industrial Average Index (DIA) tumbled more than 800 points yesterday as Treasury yields (TLT) (AGG) continued their upward march. Rising bond yields and signs of firming inflation have spooked investors. Investors worry that because the era of near-zero rates has ended, companies’ margins might get squeezed.
For the last few days, the bond markets have seen sell-offs due to stronger-than-expected economic data and hawkish comments from the Federal Reserve. On October 3, Fed chair Jerome Powell said, “We may go past neutral, but we’re a long way from neutral at this point, probably.” These comments likely mean that more rate hikes are ahead. Higher yields are usually negative for equities because companies’ borrowing costs increase as the risk-free rate goes up. Higher rates might deter some investment and increase the cost of borrowing, which could impact companies’ earnings and stock prices.
The U.S. economy is firing on all cylinders, which is generally good news for investors. The U.S. unemployment rate is at its lowest level in four decades at 3.7 percent. While that low unemployment rate is great news for American workers, it’s not necessarily great news for U.S. companies looking to grow their businesses.
Increasing interest rates spooked investors again today as US stocks dropped sharply amid rising Treasury yields (TLT). The PPI (producer price index) increased 0.2% sequentially in September after an unexpected decline in August. The core PPI, which excludes food, energy, and trade services, rose 0.4%, which is its largest rise since January.
The demand for gold in India (INDA) was lukewarm in the first half of the year, mainly due to stronger equity markets and higher gold prices measured in rupees. This event caused local gold prices to rise, even with the price decline measured in US dollars. According to the latest Assocham-World Gold Council (or WGC) report, the gold demand in India is likely to surge 25% in the second half due to the improved purchasing power of farmers.
Investors are keenly awaiting the US CPI (consumer price inflation) figures. The markets have placed huge importance on inflation figures (TIP) in 2018, as inflation has been one of the most important deciding factors related to the Fed’s future interest rate (TLT) path. The US CPI underwhelmed in August with a 0.2% rise sequentially compared to the 0.3% growth that was expected by economists.
As we’ve learned, stocks saw a sell-off in February after stronger-than-expected wage growth data. If today’s wage growth comes in on the upside, the markets could again go into panic mode. In a tweet, Bill Gross, the “bond king” and manager of Janus Henderson Global Unconstrained Bond Fund, mentioned the pricing out of European and Japanese buyers of Treasuries (BND) as the main reason for the bond sell-off.
The Fed is scheduled to meet on September 25–26. The Fed is widely expected to raise rates by 25 basis points during the meeting. The Fed’s minutes from the last meeting suggested that a September rate hike is more or less certain.
What Does the Market Expect from the August Jobs Report? Fed policymakers are watching job numbers closely. The numbers give them clues about whether the US economy (SPY) (IVV) is strong enough to withstand interest rate hikes.
The fixed-income market has played second fiddle to equities, but there are still areas of opportunity that bond exchange traded fund investors can look to. “The fixed income market remains challenging, ...