On November 20, Jeffrey Gundlach told Reuters that investors haven’t shown an appetite for Treasuries (TLT) even though US stock markets have fallen. He said, “Obviously, it is not a deflationary bear market, otherwise you would have a bond rally.” Gundlach also advised investors to stay out of investment-grade bonds.
Gundlach is concerned that the selling pressure in the US stock markets (IVV) (QQQ) wasn’t accompanied by higher volatility (VIX). He said, “We don’t have anything resembling a panic low … which means stocks have further to go.” On December 4, the market plunge was reminiscent of such panic and maybe more to come. Investors should note that the drop on December 4 was also accompanied by higher volumes and volatility. Even as the two major catalysts—a dovish Fed and easing trade tensions—have been put on the table, the markets aren’t catching a break.
What’s spooking markets?
Apart from the uncertainty about a permanent trade deal between the US (SPY) (DIA) and China (FXI), markets are concerned about the US economy’s prospects going forward. Leading US indicators, like business investments and housing data, are forecasting slower economic growth. US earnings growth and margins might have peaked as the high from tax reforms wear off. These concerns were already on investors’ minds. The inversion of part of the Treasury yield curve only fanned the concerns more.
What to do?
Earnings growth, margins, and economic growth could be peaking, which could limit future gains and be accompanied by increased volatility. All of these factors, plus gold and miners looking less expensive than broader markets, could prompt investors to keep a portion of their portfolio invested in gold (GLD) (JNUG). Read Could Gold Be the Best Bet amid Increased Economic Uncertainty? for more on gold’s price drivers.
Read Markets in Crisis (Cue the CNBC Armageddon Music) for more on particular stock picks.