A.I.-Related Stocks are Bubbling the Nasdaq – Part 3: Safe-Haven Gold

The bubblicious fervor for investing in the FAANG family of equities have been abandoned for technology stocks related to artificial intelligence since early 2023. That niche includes advances in semiconductor functionalities, CPUs, GPUs, microchips, quantum computing, and generative AI-powered chatbots that launched a rally in the “Magnificent Seven” (M7) stocks. A FOMO rally has definitively skewed the technology-heavy Nasdaq index and slanted valuations for various funds and major indices that include M7 members in the top percentage slots of their allocated baskets of securities.

A portion of retail investors, traders, and some precious metal pundits rarely give credit to gold’s achievement in price performance compared to the major stock indices no matter how high its price rallies or how long it consolidates within the all-time highs zone above $2,000 per ounce. Gold has certainly held onto its safe-haven reputation unless you are into cherry-picking the performance of certain individual stocks or getting lost in outdated manipulation narratives that instill fear and ignore the bigger picture. My point for today is to bring attention to gold’s price gain over the last 25 years since its $252 low printed in 1999 following the one-day high of $850 back in 1980. Since 1999, gold has risen 688%, the Nasdaq 638%, Russel 373%, S&P 279%, Dow 257%, and the dollar 4.2% as of last Friday’s market close. The unusual gain in the Nasdaq is solely attributed to FOMO in the narrow FAANG basket and M7 mania surrounding A.I.

Gold Spot Monthly Aug. 1999 Low to Feb. 16, 2024 Percentage Gain vs. Dow 30, S&P 500, Nasdaq 100, Russell 2000, and the U.S. Dollar (mouse over and select to enlarge)…

Gold Spot Monthly Chart Aug. 1999 Low - Feb. 16, 2024 Close vs. Dow, S&P, Nasdaq, and Russell - Technical Analysis by TraderStef

Other variables driving buoyant stateside market valuations include capital flows from Europe seeking safety amid war and geopolitical uncertainty, and there’s the Federal Reserve’s #TaperCaper monetary policy seen since last spring that telegraphed an end to interest rate hikes and quantitative tightening in 2024 with recession on the horizon. Despite high hopes investors have for interest rate cuts sooner than later, the Fed remains steady on a “higher for longer” path. I routinely noted in precious metal and stock market technical analyses since early 2023 for plebes to be aware:

“Keep in mind that if and when the Fed returns to full-blown quantitative easing (QE) or another dovish mode as the latest Taper Caper unfolds, liquidity injected into the recessionary West could rally stock markets until the global debt endgame plays out.” – TraderStef

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If you have not followed the technology sector or overall stock market closely, consider perusing “The A.I. Freak Show Requires Your Obedience and Capital” published in Feb. 2023 and “A.I.-Related Stocks are Bubbling the Nasdaq” Part 1 from Jun. 2023 and 2 in Jan. 2024. Here is an excerpt from last month:

“The major U.S. stock market indices have had an exceptional rally since the FOMC puked a buffet of dovish monetary policy Fedspeak. At the Dec. 13 meeting, they delivered the Taper Caper with a ‘Fed pivot’ and murmurings of an end to quantitative tightening (QT), a recession on the horizon, and a new dot plot graph that foresaw slashing interest rates by mid-2024. There were only 13 stocks (5 of the ‘Magnificent Seven’) that accounted for nearly 100% of the S&P 500’s gain year-to-date. Here’s an excerpt from the ‘Dow, Nasdaq, S&P, and Russell 2023 Close – Technical Analysis’ published on Dec. 30, 2023:

Two business days after publishing a bearish late fall analysis on Oct. 29 and one day following ‘The Federal Reserve at War’ article in the Wall Street Journal, an FOMC monetary policy announcement on Nov. 1 was dovish enough to launch a wicked rally to remember where ‘everyone got burned.’” – TraderStef

The Bidenomics bull is a false narrative, and gold or silver are never an investment you should fear. They serve as an excellent hedge on numerous fronts, especially against crises like the current state of war in the world.

Why Gold? Why Now?… “Despite the Wall Street happy talk about the Federal Reserve winning the battle against inflation, that battle has not been won… The Fed will not raise rates, but they will not be quick to cut them… one of the main reasons I recommend gold is that it’s priced in dollars… Geopolitical conflicts and political turmoil often result in unforeseen consequences. These consequences can include supply chain disruptions, economic sanctions, asset seizures and freezes, bond defaults, bank failures, and inflation… Gold and stocks are driven by separate factors. That makes gold a good diversification asset. Every investor should have an allocation to gold in their portfolio. It is a powerful asset to have in the face of natural disaster, infrastructure collapse, or social unrest. I recommend a 10% allocation to gold.” – Jim Rickards, Feb. 12

It’s important to emphasize that the M7 bubble has become so large in terms of financial strength that its combined profit and market cap exceed those of all listed companies in every non-U.S. G20 country except for China and Japan. Deutsche Bank analysts recently noted that M7’s combined market cap alone makes it the second-largest country stock exchange in the world. The most talked about darling in the M7 is Nvidia Corp., and the financial press continues to ramp up interest in the company before its highly anticipated earnings report that’s due tomorrow while selling pressure was evident this week.

Despite the level of “irrational exuberance,” there are cooler heads out there that suggest investors should capture some profit before an inevitable correction takes place. Citigroup strategists correctly pointed out that any sell-off could trigger a wider rout,” Bank of America said the M7 rally resembles some historic bubbles,” J.P. Morgan is concerned that the recent rise in stock market concentration is the steepest in 60 years with only a few driving most of the returns, and Deutsche Bank notes that the top 10% of stocks represent roughly 75% of the U.S. stock market’s value measured by capitalization and is the highest since the 1930s.” The trend is your friend, until it’s not.

There is a lot going on in the world and at home, so be sure to keep your financial house in order. Let’s close shop tonight with a few insights into the Fed’s monetary policy and financial markets by Jeffrey Gundlach.

DoubleLine CEO Gundlach: Risk to economic growth could build as we move forward – CNBC, Jan. 31


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A.I.-Related Stocks are Bubbling the Nasdaq – Part 3: Safe-Haven Gold

A.I.-Related Stocks are Bubbling the Nasdaq – Part 3: Safe-Haven Gold