The USD is strengthening.
It’s not because investors suddenly realize it’s a wonderful asset class.
The reason is UNCERTAINTY.
Markets are frozen.
Contrary to previous market corrections, fund managers aren’t quick to buy the dip. Instead, they’re telling sellers that for them to scoop up shares again, they will need to lower prices, so for the time being – they’re sitting on cash.
When funds, typically allocated with stocks and bonds, are parked in cash, the demand for USD increases and thus its price does as well.
That’s why you’re seeing precious metals prices down, bonds yields going up, and stocks going nowhere.
It’s a temporary pause for investors. They are contemplating their next move.
I want to use this time to discuss why investors cash up and open their eyes in search of opportunities.
For nine years, stocks have been the place to be. Central banks provided liquidity and investors took advantage of it.
2017 marked the end of that era. Now that stocks have shown that they aren’t immune to sell-offs, the fund managers, institutional money, and pension funds are thinking of ways to generate profits, going forward.
But unlike recent years, the path isn’t clear.
U.S. companies are already reporting record profits, so the question is – can businesses become even more robust?
Since investors can’t adequately answer this at the moment, they hold large cash positions. I know I am. Mine is the largest it has ever been.
So, what happens next?
The real estate market is very healthy, and prices keep heading higher, but they have much more room to grow. There’s a huge demographic group living with parents or in rentals, but are hitting their 30s and are ready to move into home ownership – the millennials.
Stocks are not cheap, but they’re not expensive either. So, we certainly have room to grow there as well.
Cash is absurd to hold, as inflation is close to 3%, but it makes more sense than stocks if you believe that stocks will go down even further.
We are left with bonds, which are seeing higher yields, coupled with falling prices.
Cash is king at the moment, but America’s economy is over-heating, which means that spending habits are returning to normal.
So, Portfolio Wealth Global sees the next stage for the U.S. markets like this:
- Millennials will start spending more.
- Inflation will pick up mildly at first, sending stocks into a final bullish surge, then a well-deserved top.
- As stocks begin a bearish cycle, while inflation stays high, commodities will become the market leader.
May is historically a very weak month for stocks, so commodities could rally soon.