The Copper/Gold Ratio says markets move higher

The chart below shows the S&P 500 (SPX) overlaid with the Copper/Gold (HG/GC) Ratio on a daily basis over the past 15 years.

The latter ratio is a good indicator of the economy’s health and sometimes a predictor of interest rate direction.

I find this chart helpful when pondering my asset allocation to equities and how much broader risk I am comfortable taking, especially at the later end of an advance, bull market or rally.

I like seeing how the SPX reacts when the HG/GC breaks above or below its trend lines.

Today’s reading of 0.002396 is calculated by dividing the Copper price of $4.32 into Gold’s $1,803.

At this moment, while the HG/GC’s is trading above its trend line (and a reading of 0.00222) it is suggesting that the S&P 500 advance remains intact……..

This seems quite perverse to many, as pundits reiterate their calls of an overvalued, ‘bubble-esque’ equities market.

In some recent posts I challenge the norm and perhaps the consensus call for a notable decline.

The S&P 500 can continue trading at the historical higher end of its historical stretch above its 200 Week Moving Average, just like the late 1990’s.

https://www.linkedin.com/posts/robzdravevski_the-sp-500-is-trudging-higher-and-has-registered-activity-6817722567969927168-bcxo

and the way the S&P 500 relates to the U.S. 10 year bond yield or more pointedly, the spread between the 10 year and 2 year yield is another important indicator to watch.

https://www.linkedin.com/posts/robzdravevski_its-an-interesting-market-day-developing-activity-6818881106222444545-Wh-o

Investing is a highly nuanced past time or business.

Often markets move to where they can do the most damage….and going up can cause as much damage as going down, in circumstances such as ‘missing out’ or underperforming other fund managers if you’ve been holding a lot of cash.

P/E ratios are not the only thing to look at.

One scenario of a 0.00222 reading is Copper falling to $4.10 and Gold rising to $1,850. Just something to play around with.

July 12, 2021

by Rob Zdravevski

rob@karriasset.com.au

An Even More Fertile Habitat

2 months ago, in the link below I wrote about equities being a fertile investing habitat.

I’d even say, there is no alternative (TINA), but that’s just a headline grab.

I mainly discussed the relative valuation and importantly the Earnings Yield of the S&P 500 versus the 10 year bond.

n.b. when P/E’s are 20, 30 and 40, absolutely cheap is difficult to find, although us stockpickers will continue to search.

https://robzdravevski.com/2020/07/15/equities-the-fertile-habitat/

Next year’s consensus P/E for the S&P 500 is 23 but on this occasion I wanted to extract the EPS estimates of the “inflated” FANNGM stocks.

These 6 stocks now make up 49% of the Nasdaq 100’s market cap and 26% of the S&P 500.

I found this work below which puts the S&P 500 P/E ex-FAANGM on 19.4.

This means the S&P 500’s Earnings Yield is 5.15% or 7.3 times more than the 10 year bond yield.

Re-iterating & re-phrasing comments from the linked story above…this multiple has NOT been seen since World War 2.

So, what’s the trade?

Perhaps…..Long selected portfolio stock ideas (or Russell 600 Small Cap) and Short Nasdaq 100 to hedge out the “overvalued” market risk?

I’ll get back to you.

source: https://www.yardeni.com/pub/faangms.pdfhttps://www.yardeni.com/pub/faangms.pdf

September 8, 2020
by Rob Zdravevski
rob@karriasset.com.au

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