While the S&P 500 trades at a rich 24x forward earnings, its gains are heavily concentrated in the ‘Mag 7,’ whose towering Price-to-Free Cash Flow multiples (eg AMZN’s 174.4x) suggest a market dangerously “priced to perfection.” But a deeper unease is driving gold. Up over 50% this year, its rally resembles the 2011 credit downgrade panic, fueled by fears of currency debasement and US fiscal recklessness, despite moderate 3% inflation. With gold’s recent 8.5% plunge hinting at volatility, investors may be wise to trim those spectacular gains, while the Mag 7 face an extremely high earnings bar
Interest Rates / Bonds
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When Will Bad News be Bad News?
History shows that central bank easing cycles generally benefit stock markets. However, we should ask why central banks are cutting. If the Fede cuts rates to combat a slowing economy, the news may not be as positive as it seems. A weakening economy means lower corporate earnings and reduced consumer spending, which are ultimately negative for stock prices. Several bleak monthly jobs reports is evidence that the economy is struggling. But is just a soft patch or something worse? I suggest exercising caution – rate cuts are not always a positive.
Powell in No Hurry to Cut Rates
You have to feel for Jay Powell. He’s in a tough spot – facing pressure from the market and the President to cut rates. However, to his credit – he can separate the noise from the signal. The Fed Chairman reiterated his narrative – signaling the need for a more cautious stance amid ongoing economic uncertainty. In addition, he emphasized the Fed needs to maintain credibility and independence. However, there was some dissent within the ranks…