The recent volatility seen in global stock markets has largely dominated headlines in the financial media recently, and many investors are likely wondering why the sudden sharp increase in price swings. Regardless of what the reason may be-whether it is overaggressive betting against volatility, the idea of rising rates, accelerating inflationary pressures or the current state of geopolitics-there may be a simpler, albeit unpopular answer: Stocks and risk assets are seeing a return to valuations more in line with historical norms.
That’s right: Stocks have not always exhibited the type of bullishness that has been seen in recent years, and in particular over the last year. The current bull market is actually unprecedented in some respects, and it has defied both bearish investors and analysts for some time now. Stocks have climbed higher for years now, like a knife through warm butter, as investors were able to simply shrug off fundamentals and any bearish news. (Of course, given the history of interest rates over the last decade, investors also had no choice but to buy stocks in order to generate any type of return).
The era of easy money is coming to an end, however, and now markets appear to be entering a “re-pricing” phase in which risk and current valuations are reevaluated. Given some of the sharp selling seen in recent sessions, it seems as if investors are coming to the conclusion that current equity prices may be sharply overvalued.
The Fed is currently poised to hike the key interest rates again in March, and has another two additional hikes penciled in for this year. The central bank also happens to be in the process of shrinking its balance sheet while mopping up excess liquidity. This begs the question of whether or not stocks are able to continue higher, or simply maintain recent gains without the central bank pumping the system full of money. If the last two weeks are any indication, equities may have a tough road ahead as central banks look to normalize monetary policy.
Although recent price action may be suggestive of a market top and the end of the decade-long bull market, there is perhaps a simpler, more accurate way to describe the sharp increase in volatility and stock selling: A reality check.
Markey dynamics are changing, and could continue to evolve at a fast pace as balance sheets contract and inflation picks up. If you do not already have asset classes that may offer diversity away from stocks and bonds, and may also help preserve purchasing power as inflation rises and the dollar weakens, now is the time to take action.
Hard assets like physical gold may be the ideal vehicle for the current inflationary environment. Gold may potentially offer a meaningful hedge against inflation and a weaker greenback, while also providing added diversification from more traditional asset classes. Throw in the fact that the metal also has significant price appreciation potential, and there is simply no valid reason not to have a significant amount of gold as part of your overall investment strategy.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how to acquire this key asset class using your IRA account. Don’t wait for the next major wave of stock selling, or for higher inflation to eat away at your returns before taking action. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, easy money, gold, monetary policy, normalization, price swings, stock market, volatility