Experts Suggest Stocks May Be Overpriced, Federal Reserve May “Tank” Economy
It’s never a bad idea to enjoy the good times. We work hard to build the lives we lead, and when we see positive results from that hard work, I think it’s important to take time to appreciate the rewards we’ve earned. But sometimes, it seems, times can be a little too good—at least when it comes to the stock market.
On September 5, 2023, Morgan Stanley chief investment officer Michael Wilson wrote in a research note that “at current prices, markets are now expecting a meaningful re-acceleration in growth that we think is unlikely this year, especially for the consumer, which aligns with our economists’ forecast for slowing PCE growth.” Translation: Consumers may be expecting too much from the recent rise in stock prices, which may mean a market correction is on the way.
JPMorgan CEO Jamie Dimon seems to agree. At a Bayclays conference on September 11, 2023, Dimon said that “to say the consumer is strong today, meaning you are going to have a booming environment for years, is a huge mistake. The future has quantitative tightening.”
If these opinions are correct, it may be time to consider shoring up your portfolio with protective assets.
According to some analysts, stocks may be facing a “laundry list” of dangers.
Wilson also says in the note mentioned above, “Potentially softer September and October data is not priced into many stocks and expectations, in [Morgan Stanley’s] view,” indicating that the growth of our economy may already begin to slow this month.
As readers of “Gold News & Views” know, this prediction follows a time-tested pattern. According to Business Insider, the S&P 500 has dropped 0.7% on average every September since 1945, a phenomenon known as “The September Effect.” But this year, more may be going on than a typical annual slowdown of economic growth.
On August 31, 2023, Yahoo Finance published an article quoting Tudor Investment Corporation portfolio manager Ulrike Hoffmann-Burchardi, who outlined several risk factors that may lead to a slump in stock prices in the coming months. Risk factors included continued inflation, a government shutdown, and more potential trouble in the banking sector.
“I would not be surprised if any of them, or a combination, could lead to an equity-market correction in the next three to six months,” Hoffmann-Burchardi said.
Eddie Ghabour, CEO of Key Advisors Wealth Management, also foresees a drop in markets. In a Yahoo Finance interview published August 30, 2023, Ghabour noted that “you normally will see a double-digit drop…when the market finally prices in the recession,” warning that the Federal Reserve’s pursuit of a 2% inflation rate may result in a significant drop in stocks, which could remove a significant part of market growth in 2023. “I don’t see how you can get that rate of change to drop that much by next year without a recession,” Ghabour said.
Jamie Dimon also sees rate increases as a potential danger to the economy, saying at the event mentioned above that “if rates go up another 50 basis points, that will cause more issues with banks, more issues with real estate. If you have that with a recession… you’re going to see a little bit more stress and strain on the system.”
When faced with uncertainty, consumers often look to time-tested protections.
It’s a logical move—when we don’t know what the future holds, we want to find a strategy or asset that can help protect our hard-earned savings, a strategy that we know has stood the test of time. Many of our clients have reached out to us for the first time because they are concerned about their financial future, their retirement, or their family’s financial security.
I tend to do the same, but not always out of concern—instead, I try to look at market uncertainty as a potential opportunity for growth. With the right level of diversification in my portfolio, I hope to be able to weather any market volatility and even see growth during times when stocks may be headed downward.
But to find that level of diversification, I look to perhaps the oldest store of wealth in existence: physical gold.
Gold can help bring peace of mind in times of market uncertainty and volatility.
During the 2007–2008 Financial Crisis and the Great Recession, demand for physical gold exploded. Forbes writes that between late 2007 and 2009, “Gold prices rallied almost 50%,” and by the end of 2011, gold had reached a then-all-time high of around $1,900/oz.” (We’ve since seen new all-time highs over $2,000/oz., and gold is currently holding above the former all-time high, at around $1,920/oz. as of this writing).
Why did so many Americans turn to physical gold to protect their wealth? Because gold has a generations-long record of retaining its purchasing power in the face of inflation, as well as a well-documented history of growth during and after economic downturns. It has a proven performance record of growth over the long term and is recognized as a form of currency in nations around the globe. In short, gold is, to many people, real money, and thus preferable to paper-based assets like cash and stocks during times when our nation’s economic future is in question.
For me, gold is a form of wealth insurance. I include it in my portfolio to help protect the savings and wealth I can’t afford to lose. And having gold in my asset mix makes me more comfortable knowing that if the economy does “tank,” as Yahoo Finance puts it, my portfolio has that extra layer of protection that only physical precious metals can provide.
