Bonds, Stocks, and Gold: How to Weather Market Turmoil
In the past bonds have always outperformed stocks during times of stock-market turmoil, but Treasuries and munis suffered losses in the first six months. At that time gold was showing a slight decline around 1%.
In 1965, Martha and the Vandellas’ "Nowhere to Run" was one of the hottest singles. The classic Motown hit may as well be the official soundtrack of investing in 2022. In that year, the S&P 500 posted its worst first-half of over 50 years and fell further into bear territory, while nearly every other asset class turned in a negative performance.
The following chart shows the performance of several industries and sectors that we follow closely at U.S. Global Investors. Each of them finished the first half of 2022 in negative territory.
In the first quarter of 2018, Treasuries and municipal bonds were among the biggest losers, even though they are seen as safe havens. Gold was essentially flat, having lost about 1%; meanwhile, gold miners were among the biggest gainers at that time but subsequently traded sharply down as soaring fuel costs hurt their revenues.
Bitcoin has been called a potential replacement for gold as a store of value, but the digital asset just endured its worst month on record. The crypto lost nearly 38% of its value in June alone and for all of 2022 so far, it's down about 57%.
If you're a contrarian, this may be an interesting buying opportunity. Bitcoin's 14-week relative strength index (RSI) is now in line with its most oversold levels on record, in early 2015 and late 2018. During both of these "crypto winters," critics of digital assets gleefully the end to Bitcoin,, and many are doing so today. I'll just say that, had you accumulated Bitcoin when the RSI was this low, you would have seen some incredible returns.(Past performance is no guarantee of future results.)
A number of factors have contributed to the current state of the economy.
How did we get to this point? Current market conditions were largely triggered by a perfect storm of rising interest rates, sky-high inflation, record fuel costs, and the end of easy money. Put another way, Powell & Co. slammed on the brakes as the economy appeared to be slowing down.
Copper is often referred to as "Doctor Copper" since its price movement has predicted economic upswings and downturns with a high degree of accuracy. This year, the red metal, which is found in almost everything, fell the most below its 50-day moving average since 2011, when copper lost a third of its value.
It's not necessary to follow the copper market to know that conditions might be getting worse. The latest Gallup poll shows that Americans' outlook on the economy in June dropped
The U.S. economy may be in a recession, which is when gross domestic product (GDP) shrinks for two consecutive quarters. Real GDP fell by 1.6% in the first quarter, and the Atlanta Fed is now
On top of everything else, this is a midterm election year for a first-term president (whose approval rating, I should point out, is slipping). Historically, this has resulted in an extra shot of market volatility as the mudslinging between the two parties intensifies. Since 1946, the second year of a new Democratic president has ended in an S&P 500 loss of 2.3% on average, according to Jeff Hirsch, editor and chief of The Stock Trader’s Almanac."
Outlook For Rest of 2022
Investors are now left wondering where they can hide for the remainder of 2022. As I said in an earlier post, gold has been one of the very few bright spots this year. It's managed to stay essentially flat even as the value of the U.S dollar surged, which is more than we can say about nearly everything else.I expect it to perform just as well, if not better, in the second half.
The Fed’s monetary policy tightening has made it challenging for companies to navigate this market, and the longer the conflict in Ukraine continues, the longer gas prices will likely stay elevated. We could call it a “war tax.”
Investors may be tempted to speculate, and prices could still fall further. At this point, no one can predict what will happen next, but it's worth remembering that we have not yet reached the bottom.
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