U.S. stocks lost ground for another week on rising bond yields and growing uncertainty over next week’s U.S. elections and Fed meeting, while gold continues to shine.
Meanwhile, bond prices continued to decline, sending yields even higher. The benchmark 10-year U.S. Treasury bond ended the week with a yield of 4.36 percent, up from 4.24 percent at the beginning and 4.08 percent the previous week.
“Even though Thursday’s core PCE moved only slightly higher, we believe this is the first in a series of months and quarters where we see an increase in inflation,“ Michael Landsberg, chief investment officer of Landsberg Bennett Private Wealth Management, told The Epoch Times in an email. “Investors should be prepared for a re-acceleration of inflation in late 2024 and early 2025.”
Treasury bonds are fixed-income securities, and higher inflation erodes the purchasing power of future cash flows that investors expect to get from this class of assets. Thus, they demand higher yields as compensation for this loss of purchasing power.
After a brief decline on Thursday afternoon, Treasury bond yields resumed their climb on Friday. This followed a stronger-than-expected rise in hourly wages in the United States, raising fears that the nation is in for another round of price hikes. Firms will try to pass the higher wage cost on to consumers, thus reaffirming the belief that inflation could remain elevated for quite some time.
In addition, Landsberg sees elevated commodity prices and higher shipping costs in China as pressures on prices. “It’s important for investors to maintain exposure to inflation-benefiting assets such as commodities, insurance stocks, and gold,” he explained. “Higher for longer on both rates and inflation is still the play.”
Still, the upcoming presidential elections could exacerbate bond market worries about elevated debt and bond yields. Both candidates promise to increase spending, which could push the soaring U.S. government debt and bond yields even higher.
However, uncertainty over the election mandate didn’t stop investors from buying gold, which shined again during the week. On Nov. 1, it closed at $2745.90, up 0.18 percent.
Gold hedges against political risks arising from elections and regional wars. It is also a widespread holding when central banks lower short-term interest rates, as has been the case recently.
“We continue to see coordinated efforts by central banks in lowering the rates from the Fed to the European Central Bank, Canada, England, and New Zealand,” Alex Ebkarian, COO and co-founder of precious metals dealer Allegiance Gold, told The Epoch Times in an email. “As rates drop, gold is becoming more and more attractive. While gold competes with cash and treasuries, its performance has dwarfed the two tier 1 assets in the past year while maintaining its counter-risk feature.”
The precious metal is up 33.14 percent year to date, beating the S&P 500, which is up 20.1 percent over the same period. It has hit more than 40 all-time highs and is on track for its best performance in 45 years.
“This week’s market rode a turbulent wave: tech giants scrambled with sky-high valuations, and investors winced as A.I. costs ate into profits,” David Materazzi, CEO of Galileo F.X., told The Epoch Times in an email, commenting on last week’s action on Wall Street.
“When the ‘Magnificent 7’ dazzled with revenue beats, Wall Street was unimpressed ... like gold gilding a sinking ship, costs sank investor confidence.”
Looking ahead to next week, Materazzi sees market jitters continuing, driven by both the U.S. elections and the Federal Open Market Committee monetary policy decision.
“With the Fed set to announce its decision right on the heels of election results, markets may swing dramatically, especially if unexpected outcomes arise,” he said.
“Investors should brace themselves: any disruption in the political or economic landscape could set off rapid market moves.”
As for gold, Ebkarian remains optimistic, noting retail investors buying into the rally. “The retail investors have started following central banks and are increasing their allocations, as evidenced by the inflow into ETFs and their increasing demand for physical gold,” he said.
