Why Marc Faber Predicts a Correction in the S&P 500 Index
Marc Faber in an interview with CNBC
In an interview with CNBC’s Squawk Alley on Monday, July 31, 2017, Marc Faber, editor and publisher of the Gloom, Boom & Doom Report, shared his views on the following:
- market movement
- why he foresees a market correction
- central banks’ strategies
- asset allocation
Interested in SPY? Don't miss the next report.
Receive e-mail alerts for new research on SPY
Marc Faber on market movement
Faber said in the interview that although the US indexes (QQQ) (DIA) are making record highs, investors should be cautious about the market rally. He said the market is “very distorted.” So could investors face a correction in the market (SPY) in the near term?
Since January 2016, the S&P 500 index (SPX-INDEX) has risen nearly 23.0%, as of August 3, 2017. Gold prices (GLD) have risen nearly 16.0% during the same period. The SPDR Gold Shares (GLD), which tracks the performance of gold, rose nearly 17.0%, and the iShares MSCI Global Gold Miners (RING), which tracks the performance of gold miners, rose nearly 64.0% during the same period.
In the past, we’ve seen that when the equity market tumbles, investors moved toward safe-haven assets such as gold and the Japanese yen (FXY). Gold outperforms in that scenario. In 2008, when the global debt crisis spooked the equity market, gold rose about 145.0% from September 2008 to July 2011, while the equity market took a huge fall. Since July 2011, the S&P 500 index has risen about 62.0%, touching its high of 2,130 in July 2015. During the same period, gold fell about 92.0%.
It shows that the equity market and gold have an inverse relationship. They are negatively correlated. Between January 2010 and December 2015, GLD had a negative correlation factor of 0.89 with the S&P 500 index. However, in the present situation, both the S&P 500 index and gold are moving in the same direction. According to Faber, this situation might lead to a great disruption in the market.
In the next part of this series, we’ll look at Faber’s view on the central banks’ decisions.