This week marks the 31st anniversary of Black Monday, a singularly awful stock market event that has provided an important lesson to investors ever since.
On October 19, 1987, stock markets crashed around the world. Hard. Significant drops roared west from Hong Kong to Europe before dealing the U.S.A. a full-on body blow.
The Dow Jones Industrial Average fell an incredible 23% that day. Today, that would be about a 5,700 point drop!
While that one was extreme, it happened and it bears remembering now. Now, when sky-high stock markets are seeing big increases in volatility.
There are many serious factors facing investors in the coming weeks:
• Election Day 2018, which occurs Tuesday November 6, represents a highly controversial vote that could be a catalyst for big changes in the market.
• President Trump is engaged in a very public battle with the Federal Reserve, saying it could dismantle the economy if it bungles its interest rate policy at its November 8 meeting.
HEDGING AGAINST A VOLATILE MARKET
There is ample data showing that gold and silver behave differently than traditional stock markets. This makes precious metals a unique safe haven and portfolio diversifier worth considering now.
Pro investors have been beating this drum for months now.
Bank of America Merrill Lynch (BAML) sees gold as a portfolio hedge of special interest for fall 2018. They see a weaker dollar and more volatile stock markets straight ahead.
“Gold is regaining its prominence as a portfolio hedge… and the likelihood of a relatively less hawkish Fed into year end can increase the value of gold,” say BAML strategists.
Analysts at Commerzbank agree that risk appetite could disappear quickly: “We envisage further upside potential for the gold price.
VOLATILITY = MORE SLEEPLESS NIGHTS FOR MANY
Morgan Stanley equity strategist Michael Wilson warns there could be more pain ahead for stocks.
“We don’t think the [stock market] correction is done yet,” he says. “Recent price declines in crowded growth, tech and discretionary have cause enough portfolio pain that we think most investors are playing with weak hands.”
Even if stocks don’t see more bad declines right away, any increased volatility could result in a lot of heartburn and sleepless nights for investors. MarketWatch says “volatility is likely to remain elevated for now as bulls and bears continue to face off for control of the market.”
The Cboe Volatility Index agrees with this assessment. It currently reads at over 20. This means we are getting high volatility relative to the historical averages.
In a research report distributed Monday called “U.S. Equity Strategy: Post Traumatic Volatility Disorder,” Credit Suisse’s Jonathan Golub says a resurgence of volatility is under way. This can, in turn, frighten investors even more and get ugly quickly that way.
WHAT IS WRONG WITH THE STOCK MARKET?
Nigan Arora, founder of The Arora Report, recently cited his top reasons why a quick, big decline could be ahead for stocks:
High valuations, rising interest rates and rising earnings…
Investors have shown a bullish market sentiment for years now. They’ve grown accustomed to a market rise that seems almost unstoppable. But valuation levels are eerily similar to 1987 levels and investors seem almost too immune to bad news, says Arora.
Over-dependence on passive investing…
Arora thinks that today’s “unshakeable faith” in long-term buy and hold investing through passive funds and ETFs could be a big problem eventually. He believes it has left investors complacent and unaware of true market risks.
Federal Reserve could make a mistake…
Today’s Federal Reserve bankers face an overheating economy, rising inflation, worker shortages, criticism from political leaders and more. Move too fast and the economy chokes… move too slow and inflation spins out of control. Can they find the right path?
Over-ownership of large-cap tech stocks like Apple, Facebook and Amazon…
Traditional market advice might say to own large cap stocks that can last through all types of market cycles. However, past market crashes have shown that even the largest and most powerful of companies can be destroyed virtually overnight in the right circumstances.
Acrimonious geopolitics and economic rhetoric…
Trade wars, immigration battles, diplomatic issues, election hacking scares and more are leading to increased tensions with allies and enemies alike around the world. If a real crisis breaks out, strained relationships could easily lead to economic roadblocks and lost markets for America’s biggest companies.
David Kosten, chief U.S. equity strategist for Goldman Sachs, says that market hits of 5% or more are actually a common phenomenon: “Since 1927, the S&P 500 has typically suffered a 5% pullback once every 71 trading days,” he said.
GET READY & BE READY
Whether you are a first time gold buyer looking for the right company to work with or an experienced gold investor, there are plenty of reasons to consider buying gold now:
Commerzbank says gold prices will exceed $1,300/oz again in 2018
Goldman Sachs says gold will be over $1,325 in the next year
RBC Capital Markets says gold will be over $1,338 in 2019
Bank of America Merrill Lynch says gold will hit $1,300 in 2019
Physical gold can provide safe haven protection for your portfolio in these uncertain times. Peace of mind, diversification, privacy and more could be yours.