Market Props Up Euphoria as Gold Hits New Highs
The market continues to embrace any bit of good news, but where can an investor find real value?
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Investors continue to latch onto any piece of good news while ignoring any negative data point that might cloud their bullish stance.
On Thursday, it was confirmed that GDP grew at a 3% clip in the second quarter. That was more than double the 1.4% reading of GDP growth in the first quarter of this year. This means that GDP in the first half of 2024 was 2.2%. This is down substantially from the over 4% GDP growth in the back half of 2023.
However, if one takes the past four quarters combined, GDP has risen a bit over 3% annually. That's more than respectable, unless you factor in the fact that deficit spending is nearing 7% of annual GDP, and this is figured into the growth calculation.
The bullish thesis this week has been bolstered by new stimulus measures taken by China to boost their sluggish economy. It appears that there are few economies these days that can produce solid growth without being goosed by government largess.
Gold also keeps hitting new all-time highs as well. I personally find that more understandable, given the lack of anything that can be described as prudent fiscal governance happening in the world at the moment. The ironic thing is that even central banks are buying gold and Bank of America reported recently that the yellow metal has surpassed the euro to become the second-largest asset class that central banks hold. It now amounts to 16% of global bank reserves. This compares to a 58% weighting for the U.S. greenback, which is down from just over 70% at the start of this century.
A bigger concern around the market I have is that I am finding so few bargains among equities in recent months. It seems that every other stock I take a look at is selling at the highest price-to-sales or price-to-earnings ratio that they have sported in the last decade. And, in many cases, this applies to both valuation metrics.
I looked at an industrial supply company named CSW Industrials, Inc. CSWI earlier this week that was trading around 45-times forward earnings and over seven-times forward revenues. The stock is up some 80% this year and growing its top line in the mid- to high single digits in a fairly low-margin business. Maybe the new math the market is using to value companies these days has just passed me by. At least this is based on GAAP earnings, I suppose.
I continue to work hard not to give into FOMO. I certainly do wish I had taken bigger positions in some of my gold-related holdings earlier this summer, like Newmont Corporation NEM and VanEck Gold Miners ETF GDX. I also continue to deploy new money into the market almost entirely via covered-call positions now. This will provide solid downside protection should the market finally succumb to some long-overdue profit taking.
I even managed to find an infrastructure stock the other day that looks undervalued after a recent pullback. I'll provide more detail on that name in my covered-call trade this weekend. And that is the view from a market skeptic as we look to close out another trading week at all-time highs.
At the time of publication, Jensen was long GDX and NEM.
