Can stocks beat gold? ‘Nowhere to go but equities’; avoid these ‘loser’ investments – XOUT Capital
Investors have ‘nowhere to go but equities’ as risks for the stock markets are skewed to the upside, David Barse, founder and CEO of XOUT Capital, who noted that investors should be careful to stay away from value traps.
Barse’s investment strategy with the XOUT index is to eliminate the worst performing large-cap stocks that have a “risk of being disrupted” and could underperform their peers based on seven criteria: revenue growth, hiring growth, capital deployment, share repurchases, profitability and deposit growth (for banks), earnings sentiment, and management performance.
“The market is going through an interesting time now where you have outside influences like the Federal Reserve pumping up the market and you have the inability to allocate to any other asset class , and I look at fixed income, cash, and equities as the three asset classes to allocate to,” Barse said. “Gold, I put in a separate category, but clearly, there’s nowhere else to go but equities, so I look at the marketplace optimistically, and continue to believe that equities are the place to allocate capital.”
Gold’s role in a portfolio should be as a store of value, Barse said.
“I look at gold as a storehouse of value for those who have an uncertain view of the future and want an opportunity to be able to allocate some component of their capital to gold but it’s different in my perspective, from cash, fixed income, and equities, he said.”
How the Fed’s inflation policy shift impacts the gold rally
Gold is looking even better after the Federal Reserve decided to tolerate higher inflation.
The precious metal rallied more than 2% on Friday morning, climbing back from the 1% drop in the aftermath of the historic announcement Thursday by Fed Chair Jerome Powell that the central bank’s inflation target could exceed 2% to offset stretches of weaker inflation.
The previous target has been an average of 2% over time. The change implies the central bank could keep interest rates lower for longer.
Delano Saporu, founder of New Street Advisors, says support for money markets from the Fed should keep investors interested in gold. “You still have money supply increasing,” Saporu told CNBC’s “Trading Nation” on Thursday. “Safe haven investors are looking for another way to unlock value. With rates being as low as they are, you’re going to see some of them turn to gold to put that money to work.”
Lower interest rates and a weaker U.S. dollar have historically helped dollar-denominated gold prices. Gold has also benefited this year from increasing uncertainty around the pandemic and impact on the U.S. economy.
Gold hit a record high above $2,000 earlier this month, while the GLD gold trust ETF has risen more than 29% this year in its best annual performance since 2010.
“I think that’s what you’re going to look for is a momentum trade at least, at the very least, here with the gold asset,” Saporu said.
Nancy Tengler, chief investment officer at Laffer Tengler Investments, agrees that investors will favor gold in this environment.
“The reason people who own gold and liked gold prior to the Fed’s comments … those reasons are still in place — negative real interest rates, a ballooning of government debt, and the only safe-haven plays that we have now are Apple, Microsoft and Facebook. So I do think that that has not changed,” said Tengler.
CNN Business/Julia Horowitz
The US is adding jobs. But the recovery could take years
Economists are worried that the tepid recovery in the US job market could run out of steam this fall should coronavirus cases surge again just as federal stimulus money runs out.
What’s happening: The US government is expected to report Friday that just under 1.4 million jobs were added in August. That would bring the total number of recovered jobs up to roughly 10.8 million. Such gains are substantial, but account for just half of what was shed in March and April. As summer comes to a close, a lot is riding on the pace of Covid-19 infections and what happens in Washington.
American Airlines (AAL) has said it will have to lay off or furlough 19,000 workers unless the airline industry gets more help from Congress. United Airlines (UAL) has warned that it be forced to furlough roughly 20% of its pilots.
Airlines got up to $50 billion in help via the last stimulus package, but had to agree not to lay off employees until October 1 in order to tap the funds. Months later, the sector is still in crisis.
“It was assumed that by September 30, the virus would be under control and demand for air travel would have returned,” American CEO Doug Parker and President Robert Isom said in a letter to employees. “That is obviously not the case.”
There are also concerns that the hospitality sector is running out of time as travel stays weak. MGM Resorts (MGM) reportedly announced Friday that it’s laying off 18,000 furloughed workers, with casinos struggling to bounce back.
“There is a particular part of the economy which involves getting people together and feeding them, flying them around the country, having them sleep in hotels, entertaining them,” Federal Reserve Chair Jerome Powell said Thursday at the Jackson Hole symposium of central bankers. “That part of the economy will find it very difficult to recover. That’s a lot of workers.”
Yahoo Finance/Reuters/Brijesh Patel
Gold hits near two-week high on dollar weakness, dovish Fed
Gold prices climbed to their highest level in nearly two weeks on Monday, as the dollar weakened and the U.S. Federal Reserve’s new policy framework suggested that interest rates would remain low for some time.
Spot gold was up 0.3% at $1,969.98 per ounce by 0304 GMT, after hitting its highest since Aug. 19 at $1,976 in early Asian trade. However, gold was down 0.2% so far this month.
U.S. gold futures rose 0.2% to $1,978.70.
“The greenback took a big spill on Friday as market participants digested what was coming out of the Jackson Hole Symposium, and the knock-on benefits to gold are still being felt,” said IG Markets analyst Kyle Rodda. “With the USD’s trend still looking skewed to the downside, a continuation of that trend might be what it takes to drive another lift in the upside momentum for gold.”
The Fed’s new monetary policy strategy suggested that the U.S. central bank’s key overnight interest rate, already near zero, would stay there for potentially years to come as policymakers woo higher inflation.
Lower U.S. interest rates put pressure on the dollar and bond yields, increasing the appeal of non-yielding bullion.