Market Summary: Buy US Dips. Skip Europe. Avoid EM, Except Brazil.

10/12/2018 3:34 pm EST

Focus: MARKETS

Monty Guild

Founder, Guild Investment Management

The U.S. market has begun a correction, one of the many that have occurred in the last few years. The correction was caused in part by the announcement that the Fed would move ahead with interest rate increases through 2019, writes Monty Guild Thursday. Bull is intact.

That would normally cause a correction of 4% to 6% in our view. However, amplifying the anxiety was the speech made by Vice President Mike Pence on China on October 4. Many consider this speech a prelude to “Cold War 2.0.” We agree that the easygoing approach to China over the last 20 years is over; however, we do not think that this creates a market correction of huge magnitude.

Unless China were to produce a banking crisis, or unless their currency were to fall sharply, Chinese yuan/U.S. dollar (CNY/USD), they will not have a contagious effect on the world economy.

Should economic or banking problems grow in China, we will call an end to the bull market. However, at the current juncture, the bull market is intact, and the demand for U.S. stocks will return after interest rates settle into a new level at about 3.25% for 10-year bonds.

With the U.S. economy growing as fast as it is, it would take interest rates of well over 4% or 5% to stop U.S. economic growth and stock market appreciation.

Market corrections always feel terrible as they are occurring, but they are opportunities if the economy will stay intact.

We believe that the economy will stay well intact and there is no reason to panic. We will be using our free cash to buy stocks at bargain levels in the coming weeks.

U.S. Stocks

We’ll keep it simple: buy the dips.

Europe

Avoid European stocks and bonds and the euro.

Emerging Markets

Emerging markets are closely tied to China. Avoid them, and EM currencies. The exception is Brazil: we see the currency rallying over the next six months.

Gold

Gold remains in a trading range, which we view as very strange given the world political situation. Obviously, gold is being hurt by the strong dollar and higher interest rates.

Cryptos

Cryptocurrencies also remain in their trading range. Speculators should use the current environment to do their homework on crypto platforms, and carefully monitor the regulatory environment and the available solutions for institutional investors.

Guild recently taught a Master Class on cryptos and digital assets at the Dallas MoneyShow; if you are interested in seeing the slide deck from this class, please send us an email.

View Monty Guild’s presentation, Global Stock Market Outlook 2018-2019 here.
Recorded: MoneyShow Dallas, Oct. 5, 2018.
Duration: 10:17.

Subscribe to Guild Management here.

 

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