Three-Way Tug of War: Stocks, Bonds and Gold

Douglas Coté

Equities continue to move uphill, and all signs point towards a successful reopening and a revived economy. Right? That certainly is the assessment of stocks as the benchmarks continue to rise and the S&P 500 now sits about 100 points away from its 52-week high $3,373. But the direction of stocks is not the only arbiter of market and economic health. Let’s look at the bond market, which certainly does not support a “bull market” scenario. At the start of the year, the yield for the 10-year U.S. Treasury — a bellwether of investor sentiment towards the economy — stood near 2%. On Thursday, the 10-year Treasury yield broke below its support and is down to 0.58%. In other words, bonds are signaling bad economy and bad markets ahead.

Gold has hit a nine-year high and shows no signs of slowing down; its cousin, silver, just hits its fourth-highest two-day gain in history, according to Carter Worth of Cornerstone Macro. While this sounds like a positive occurrence, it actually signifies uncertainty in the economy: precious metal prices tend to move inversely to the U.S. dollar and interest rates. The last time gold prices rose this high was in September 2011; a month after the Black Monday market crash, August 8, 2011, which followed Standard & Poor’s Friday night downgrade of the United States’ credit rating from AAA to AA+, the first time in history the U.S. was downgraded.

That downgrade was a consequence of earlier partisan Congressional deadlock on raising the debt ceiling; though resolved, the deadlock raised doubts about the nation’s ability to manage its finances. I wonder how the rating agencies will react to another expected $1 trillion coronavirus rescue package on top of the multiple trillions already spent? For the first time, I am mostly focused on gold. I recall that back around 2011, some observers advocated gold as an "alternative reserve currency," because the U.S. dollar was weakening in reaction to the Federal Reserve’s quantitative easing program. They say the past is prologue, so it might be time to batten down the hatches as we advised in our 2020 forecast. To read our forecast, click on the link here:

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) changes in laws and regulations and (4) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.

Past performance does not guarantee future results.