Resources/Weekly Insights

Volume 13, Edition 11 | May 18 - May 24, 2024

All That Glitters in Your Portfolio

Doug Walters, CFA

Gold has had quite the run. We look into the drivers and how we see the precious metal fitting into a well-diversified portfolio.

Contributed by Doug Walters, David Lemire, , Max Berkovich

In the realm of investable assets, gold has always held a unique allure. I’ve seen gold’s shimmer catch many an investor’s eye, and for good reason, in my opinion. But not all commentators agree. In the wake of a significant rally in gold, we talk about the drivers and delve into why we see gold as not just a precious metal but a precious component of any well-diversified portfolio.

A Timeless Treasure

Gold’s role as a store of value is as ancient as civilization itself. From the coins of Lydia to today’s exchange-traded funds (ETFs), gold has been a symbol of wealth and worth. That is not to say gold is stable, though. Detractors will point out that gold is quite volatile. And long-term studies show that its price has done little more than keep pace with inflation over the long term. So, what possible use is it in a portfolio?

A Valuable Rebalancer

It turns out gold is an excellent diversifier. Its reputation as a store of value draws investors in when uncertainty is high. When the stock market roars, gold may whisper, but when the market retreats, gold often stands firm. This dynamic plays perfectly into the hands of evidence-based opportunistic rebalancers like us. Gold is often there, providing the needed “dry powder” to buy stocks when they are at their lowest. This can lead to portfolios with both higher returns and lower volatility (the delicious free lunch of a well-diversified portfolio).

The Global Demand

Despite material declines this week, gold is up over 13% from the start of the year. Central banks, particularly China, have been stockpiling gold, helping to drive up the price. There is no indication as to when this buying will slow. For now, those like us who are overweight gold in their portfolios are enjoying the ride.

A Look Forward

We are not in the prediction business and do not have a forecast for the price of gold (note – you might want to reconsider your investment approach if it requires you to know the future). We prefer long-term exposure to gold and then watch for anomalous moves that may prompt us to over- or underweight the precious metal. Clearly, we are keeping a close eye on this most recent run in the glittery diversifier.

262%

Annual growth in NVIDIA sales

Thanks to AI, NVIDIA quarterly sales grew from $7.2B to $26.0B in just one year! How do evidence-based investors like us participate in this success story? Momentum. We focus on proven factors, of which one is momentum. NVIDIA’s meteoric rise has it appearing in funds that focus on price momentum.

Headline of the Week

AI, Nvidia, and Utilities

We will take a break from the latest inflation flip-flop and shift to other areas of intense interest. Hardly a minute goes by without another breathless news story on artificial intelligence and its ability to transform everything, everywhere, all at once. The potential seems undeniable, exciting, and even a bit scary (sometimes). At the same time, a healthy bit of skepticism is not unwarranted when it comes to society’s ability or even willingness to integrate AI’s potential into our daily habits. Stories are rampant comparing AI’s impact to the steam engine, the automobile, the internet, and the smartphone. Maybe, hopefully, but the timing may disappoint.

One area where reality continues to beat expectations is Nvidia. GPU could be the acronym of the year. Nvidia’s sales and earnings continue to astound. A few articles started to hint at competitors adjusting their strategies, which could reduce Nvidia’s growth prospects from astronomical to merely excellent. But again we shall see.

And lastly, did a utility just crack into the Magnificent 7? Not officially (yet), but the AI craze drifted into this historically stodgy corner of the market. The power generation story continues to gain traction. Apparently, it’s not enough to have a bunch of Nvidia GPU’s and Sam Altman’s brain – you also need an unbelievable amount of electricity.

OK, that’s enough fun for this week. The Fed or inflation will probably do something next week to grab our attention, but AI will continue to fight for this “headline.”

The Week Ahead

A short week due to the holiday will leave little doubt that investors will focus all their attention on the inflation report on Friday.

The Mantra

Unless we get a pronounced decline in inflation numbers when the Personal Consumption Expenditures Index (PCE) is released, expect to hear the “higher for longer” mantra to continue to make its rounds.

Previously, the Consumer Price Index came below expectations. However, it was only slightly better than expectations.
The PCE was 2.8% in March on a year-over-year basis, and after some softening in retail sales and hourly earnings, investors are looking for a much more deflated number.
Market implied odds have already moved to less than ½ of a percent of cuts this year, and now there is roughly a 60% chance of a cut in September.
Next week will also be the last week Central Bankers can chant the “higher for longer” mantra in public as they face a pre-meeting blackout period starting on June 1st.
Other than the Beige Book and another revision to the 1st quarter Gross Domestic Product, it looks like most of the action will be overseas.

Foreign Affairs

The major data points that global investors will be watching are inflation numbers from Eurozone and Japan and a Purchasing Managers Index from China.

Eurozone inflation numbers should be the deciding factor on whether the European Central Bank will be the first major to cut.
President Lagarde has been steering the markets to June all year, and lo and behold, June is now upon us.
Japan is on the other side of the spectrum; their central bank is waiting for a sign to move rates higher.
So far, the fundamentals have not paved the way for a hike in Tokyo.

Holiday

Markets will take Monday off for Memorial Day.

We are honoring the heroes who bravely served this country and remembering the fallen heroes and their families who made the ultimate sacrifice.
Happy Memorial Day!

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $2 billion.

Overview

Disclosures

Strategic Financial Services, Inc. is registered with the Securities and Exchange Commission (SEC) as an Investment Advisor. The term “registered” signifies compliance with regulatory requirements and does not imply a certain level of skill or training.

The information provided on our website, including weekly market commentaries, financial planning articles, and other educational resources, is intended solely for educational purposes. It is designed to offer insights into financial planning and investment management, aiming to enhance understanding of financial concepts, strategies, and market trends. This content should not be interpreted as personalized investment advice or a recommendation for any specific strategy, financial planning approach, or investment product. Financial decisions are deeply personal and should be made considering the individual’s specific circumstances, goals, and risk tolerance. We recommend consulting with a professional financial advisor for personalized advice.

Please be aware that Strategic Financial Services, Inc. does not provide legal or tax advice. The content on this website is not intended to be used as such or as a substitute for legal or tax advice from a licensed professional. We advise seeking guidance from qualified legal and tax advisors regarding these matters.
Investment Risks and Portfolio Management.

The discussion of any investments on this website is for illustrative purposes only and provides no guarantee that the advisor will make any investments with the same or similar characteristics as those presented. The investments identified and described herein do not represent all the investments purchased or sold for client accounts. The selection of representative investments to discuss is based on various factors, including recent company news or earnings releases.

It should not be assumed that any investments discussed were or will be profitable. All investments involve risk, including the potential loss of principal. There is no assurance that investments mentioned will remain in client accounts at the time you view this information.

When index returns are mentioned on this site, they are provided as a general indicator of market conditions and are not representative of any client’s portfolio performance. Indices are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly. Therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

While index returns are used as a framework to report on general market conditions, they should not be construed as an indicator of future performance of any specific investment or portfolio. Discussion of index returns is intended to provide context and insight, not to suggest that clients will achieve similar results. Each client’s portfolio is managed according to their specific investment goals and financial situation.

The opinions and any forward-looking statements expressed in the articles and videos featured in our resource center are as of the date of publication. These statements are based on current laws, regulations, market conditions, and other relevant factors, including third-party data. Given the dynamic nature of financial and regulatory environments, as well as potential changes in market conditions or economic circumstances, the information provided may become outdated or may no longer be accurate.
We rely on third-party data to form our opinions and projections, which means that these are subject to the same uncertainties that affect all data-dependent analyses. As such, we advise readers to exercise caution and not rely solely on the statements made herein for making financial decisions. It is recommended that investors consult with a professional advisor who can help assess the relevance and accuracy of the content in light of the current economic climate and personal financial situation.

Our website contains links to third-party websites as a convenience to our users. Strategic Financial Services, Inc. does not control, endorse, or guarantee the content found on such sites. We are not responsible for the accuracy, legality, or content of the external site or for that of subsequent links.
Contact the external site for answers to questions regarding its content.
The inclusion of any link does not imply our endorsement of the site, nor does it imply any association with its operators. Use of any such linked website is at the user’s own risk.