We are in the midst of a US election, a potentially overvalued market, conflicts in the Middle East, and a blurry but potentially large Chinese stimulus. Volatility in US stock markets has increased, flows into equity are weak, and gold is going up. Highly contradictory to this context are the selloff in US treasuries and the resilient performance of large tech stocks. Financials continue to do very well, as anticipated in a LinkedIn post 4 months ago. The big question is: what is the common denominator in this scenario? Well, the answer is gold. It is the only asset that thrives on uncertainty and slower growth dynamics. As it can be seen in the table below, gold was the only asset that saw increased buying interest last week.
Gold saw both, increased volume and buy interest
Source: Investment Analytics GmbH
Resilient Tech Stocks Despite Higher Rates
A controversial development is the resilience of tech stocks despite the recent upswing in interest rates. Tech stocks have been known for their weakness in rising interest rate periods as their profits are supposed to be too far in the future. That common knowledge is flawed and has been challenged in recent years. Tech stocks have high profitability and low debt; plus they can perform in a wide range of economic scenarios (check post from 1 Jan). This situation brings another dimension to the discussion, and that is valuations. Can tech companies continue to stretch these valuations as the AI hype continues? The answer is that it will become harder, even if these companies continue to post strong profitability. The tables below show the performance of tech stocks that did well despite higher interest rates and the summary of 5 different valuation methodologies under the column "Value".
Tech stocks that performed despite higher interest rates
Source: Investment Analytics GmbH
Analytic summary of Tech stocks that performed despite higher interest rates
Source: Investment Analytics GmbH
Tech Stocks Tracking Gold
The strong uptick in gold is another big topic. It normally anticipates a slowdown and/or price uncertainty. Mostly gold stocks correlate with gold, yet Investment Analytics found some surprising relations with gold in this instance. Strong correlations of gold with tech stocks and cryptocurrency stocks stood out in recent weeks. A potential explanation is the coincidence of strong Artificial Intelligence sales in times of an expected economic slowdown. The tables below show the performance of tech stocks that track gold and the summary of 5 different valuation methodologies under the column "Value".
Tech Stocks Tracking Gold
Source: Investment Analytics GmbH
Analytic Summary of Tech Stocks Tracking Gold
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