A Shift in Expectations
When discussing the outlook for so-called “risk assets”, i.e., mainly stocks and corporate bonds (particularly low-grade bonds) and their counterparts on the “safe haven” end of the spectrum (such as gold and government bonds with strong ratings), one has to consider different time frames and the indicators applicable to these time frames. Since Donald Trump’s election victory, there have been sizable moves in stocks, gold and treasury bonds, as the election result has strongly boosted certain market expectations.
The chart below compares three of the associated ETFs, namely SPY, TLT and GLD:
SPY, TLT and GLD – after the election, stocks rallied while treasuries and gold sold off. The main (but not only) driver of these moves were surging inflation expectations. Since mid December, treasuries and gold have quietly rallied though, in what seems to be widely considered a “technical bounce” one is usually advised to ignore (we won’t) – click to enlarge.
As we have mentioned late last year, US true money supply growth rates have accelerated sharply again. Since the stock market has concurrently broken out to new all time highs, its strength deserves some respect for now, despite the fact that valuations are extremely high.Read More »