Investors are grappling with a fresh wave of market uncertainties after the weekend, ranging from potential shifts in US Federal Reserve policy to geopolitical tensions in Iran. Precious metals markets experienced significant volatility recently, with silver and gold prices plummeting. The previously popular ‘debasement trade,’ predicated on a weaker US dollar, is now under scrutiny as investors assess its continued viability.
Bank of America strategist Michael Hartnett has flagged several warning signs. He highlights that global markets are currently driven by a consensus around debasement, economic expansion, and ample liquidity. However, Hartnett notes that Bitcoin’s recent dip below $US80,000, a 33 per cent drop in six months, is concerning. This decline may indicate dwindling liquidity as retail investors feel the pinch. Additionally, the Bank of America bull and bear index has entered ‘extreme bull’ territory, traditionally a sell signal.
Another sell signal has been triggered with 89 per cent of MSCI global equity indices trading above their 50-day and 200-day moving averages. These indicators suggest that equity markets may be overextended. Hartnett offers an alternative portfolio structure for investors seeking to navigate these uncertain times: a 25/25/25/25 portfolio, allocating 25 per cent each to stocks (with a focus on international stocks and US mid-caps), bonds, gold, and cash. This portfolio delivered a 23 per cent gain last year.
