The hidden risk in your S&P 500 index fund
“How much of your retirement savings are you now gambling on the fortunes of just six companies?
If you’re holding them in an S&P 500 US:SPX stock market index fund, the answer is: About a quarter.
That’s how much the so-called “FANMAGs”—Facebook US:FB, Apple US:AAPL, Netflix US:NFLX, Microsoft US:MSFT, Amazon US:AMZN and Google (“Alphabet”) US:GOOG — now account of the blue chip U.S. index by value. And that’s how much of each $1 you hold in an S&P 500 index fund, like the State Street SPDR S&P 500 Trust US:SPY, you are investing in just this half dozen enterprises.
(Just Apple, Microsoft, Amazon and Google account for 21% of the index.)
Yes, these companies are gigantic and global. But this nonetheless raises serious questions over the claims that the S&P 500 alone gives you a broad diversification of your investment risk. It also throws doubt on whether the index somehow represents the entire U.S. economy, and explains why the index has levitated so far this spring, even while the economic rebound has flatlined (or worse).”
Citi Says It’s ‘Only a Matter of Time’ Before Gold Hits a Record
“Bullish factors building in the bullion market are set to see prices take out the record set in 2011, according to Citigroup Inc.
Prices are benefiting from loose monetary policy, low real yields, record inflows into exchange-traded funds and increased asset allocation, analysts including Ed Morse wrote in the bank’s third-quarter commodities outlook. Gold is expected to climb to an all-time high in the next six-to-nine months, and there’s a 30% probability it’ll top $2,000 an ounce in the next three-to-five months.
“Nominal gold prices have already posted fresh records in every other G-10 and major emerging market currency this year,” the Citigroup analysts said. “It is only a matter of time for fresh” highs in U.S. dollars, they said.”
Virus surge and new China tensions could spark a 20% to 30% market meltdown, long-time bull Ed Yardeni warns
“Long-time market bull Ed Yardeni is getting nervous for the first time since the March 23 rebound.
He warns new risks from the U.S. surge in coronavirus cases to renewed tensions with China could spark a 20% to 30% meltdown.
“We’ve had a melt-up and that’s very visible in valuation multiples. Stocks are not cheap, ” the Yardeni Research President told CNBC’s “Trading Nation” on Friday. “On top of that, we don’t seem to be handling the opening up of our economy and social distancing to minimize the flare-ups of the virus as well as they’re doing in some parts of Asia and Europe.”
When the Federal Reserve took unprecedented measures to keep the Street and economy working in late March, Yardeni told investors a V-shaped recovery was in the works.
But now, he fears a changing backdrop could hurt investors who have most of their money in U.S. stocks.
“We’re seeing major states reversing the reopenings of their economies. So, all this good news we’ve gotten in May and June on the economic front, including even the unemployment numbers, is vulnerable,” Yardeni noted. “On top of all that we’ve got an increasingly and potentially dangerous conflict between the United States and China escalating again.””
Silver prices to be sustained by shrinking supply, higher demand
“The drop-off in base metal investment is going to propel silver higher, said Silver Wheaton CEO Randy Smallwood who spoke to Kitco on Wednesday.
A poor base metal market has dampened supply.
“There’s decreasing supply from the mining side, mainly because silver mostly comes from lead and zinc, and the pricing has not been very strong as of late,” said Smallwood. “We spend a lot of time studying the base metal sector, because that’s where we get most of our precious metal streams.”
During the past six months, spot zinc has stayed below US$1 per pound, but recently the metal has started to gain some momentum.
“So we see shrinking supply combined with increasing demand, and that’s always the perfect recipe for strength in commodity prices. Silver, which always lags gold, has definitely taken a run.””