Roaring Stock and Gold Markets; What's Ahead?

With just one day remaining in the 3^rd quarter of this year, the financial markets are performing quite well. Stocks and Gold are near new all-time highs, while Bond prices are getting a jolt from the Federal Reserve’s first cut in interest rates since 2020.

Let’s recap the month, quarter and year-to-date.

September’s are normally weak in stock market history, yet this month stock prices are up 1-2 percent. Treasury Notes and Bonds are ahead 1% to 1.4%, and precious metals are ‘on fire’ with Gold and Silver shooting up 6% and 9% respectively during September.

But one month does not fully tell the stellar performance this year, which is a better comparison over the nine months.

The Summers of 2022 and 2023 saw stock market declines leading into those Octobers; falls of 15% - 18%, before the big rallies in the fourth quarter each year. You had to stay invested or be really nimble to bag those gains.

This year saw a 9-10% short decline ending in early August, but essentially stocks gained in the three quarterly periods. So did Gold, to a larger extent. Here is a table of where we stand as of today.

I’ve included the S&P 500 Index (SPY) and the Nasdaq Composite Index (ONEQ) as benchmarks to show what out-performed: namely Gold, Silver, Utility and Communication stocks. Technology stocks round out the short list of the best performing sectors to own this year.

What lagged year-to-date were energy stocks, as oil prices peaked in early April. Still, a positive +6% gain for the sector. Health Care, +12%; Consumer Discretionary, +13%, Industrial’s +18%, and Financial (bank) stocks, up +20%. As you can see, even the lagging sectors gave you nice gains so far this year.

With this market being driven to a large extent by the prospect of a soft landing for the US economy – and now the first interest rate cut – this market may have more room to run higher. But before you go all-in with your lunch money, consider that the stock market (S&P 500), after a dismal 2022 - losing about 20% - is ahead a whopping +50% since New Year’s 2023. Tech stocks are +85%, Financials, +33%, Gold +44%. That’s a lot of moolah in just the past 21 months.

The historical +10% a year average gain for stocks is accurate for longer stretches, but shorten that up and the ups and downs can be dramatic year to year, even decade to decade.

Looking out over 10-year periods since 1926, stocks have not gained anything in 4 periods since the Great Depression, 95 years ago! Two of those were in the 1930's and two were this century. The 2000-2009 stretch is the most recent shown here*.

Compound Average Growth Rate (CAGR), interest and dividends included: 2000-2009

Stocks, S&P 500 Index:  -0.95%
Bonds: Corporate, Gov't. +6% to +7%
Gold, +14%
T-bills, cash: +2.8%

These numbers should jump off the page at you. Inflation averaged 2.6% during that time, so only Gold and Bonds kept you ahead of inflation. We'll call Treasury bills at +2.8% a wash. The nasty 2000-2002 bear market was followed by the Great Recession of 2008 pummelling stocks those years!

Gold prices nearly quadrupled in 10 years; $290 to $1,088 per ounce. Corporate and Government Bonds did the heavy lifting also, rising double digits in 3 of the 10 years.

I looked at the five-year rolling decade periods also and found that 12 periods were negative (out of 95). So that's a 1 in 8 chance of not making money in stocks in a 5 year period. If you are nearing retirement, say in 5-10 years, take heed of this information, and have an action plan.

Advice: Stay diversified to avoid any one investment class causing you big portfolio losses. Use Sell-Stops to protect your gains. The election / political results could affect the market’s direction in November and December.

 I'll post again after the election, and include my performance over the past 7 years using a diversified model-portfolio strategy. Contact me should you have questions or comments. I'm here to help.

Be safe out there!

~Barry

   * while still positive 10-year results, the 2001-2010 and 2002-2011 periods experienced sub-par stock returns of +1.4% and +2.9% respectfully. It was not until 2003-2012 until the rolling 10-year returns were positive and above +7%, and outpaced inflation every 10-year period thereafter.