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Does Gold really outperform during recessions and inflation?

It’s rough out there. Like, really rough. Even before this week, stocks were off to their worst start to a year since 1939. The EU and UK are on the…

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It’s rough out there. Like, really rough.

Even before this week, stocks were off to their worst start to a year since 1939. The EU and UK are on the verge of recession, yet we have 8 hikes priced in by the Fed before the end of 2022. And don’t even ask about crypto, where $18 billion stablecoins are imploding and entire ecosystems disappearing.

Given this intensely bearish sentiment, I thought it would be prudent to assess the performance of gold as a safe haven.

Gold

Humans have been obsessed with this shiny metal that we call gold for as long as they have walked the Earth. A (relatively) fixed supply and historical ties to monetary systems (the Gold Standard was only abolished by Nixon in 1971) means it occupies a unique spot in the macro landscape.

It has always had the mythical “store-of-value” title assigned to it, but how has it actually performed during recessions, and could it be a good asset to hold going forward?

History

The first case to assess was the Great Depression of 1920’s/1930’s. Between 1929 and 1934, gold rose from $20 to $35 per ounce. This came amid a period when US President Roosevelt signed into law a doctrine forcing holders to turn their gold over to the government for $20.67 per ounce. With people clinging to the metal as a result of the Gold Reserve Act re-affirming the Gold Standard (several other countries had abandoned it during the Depression), its allure grew. Eventually, the US government increased the price as part of its continued efforts to steady the economy.

But that’s a long time ago, and with the Gold Standard now a thing of the past, not wholly relevant in the context of today’s environment. Yet gold has continued to perform conversely to the market ever since. The below chart shows the price of gold since 1970, which can be seen to spike during recessionary periods.

Flight to Quality

In looking at the above graph, it is clear that Gold performs counter-cyclically, increasing in price as the economy contracts. But if we look at shorter time periods in isolation, this is not always the case.

Take March-20, for instance, when the markets first realised that the COVID pandemic was not just another virus. While the monthly return was positive at 2.2%, some of the daily returns were highly negative, including March 17th, when Gold fell a staggering 6.8%. Four of the twenty-two trading days that month yielded negative returns greater than 3.5%, as the markets wobbled severely due to the black swan event that was COVID-19.  

This data is interesting, even if is drawn from the highly unusual month that was March 2020. Because while the first graph shows us that during recessions, gold does indeed act as a store-of-value, the second graph suggests that in times of extreme fear and volatility, it goes down with the rest of the market – at least in the short-term, as it preceded to rise to where it is now.

And this latter claim is backed up by recent events, with the pattern not isolated to March 2020. As May has seen a downturn across the board thus far, gold has followed – down 3.6% from the price at which it closed in April. Or course, April was also a brutal month for markets, and gold was down then too – currently 5.6% below its March closing price.

Repeated Pattern

Indeed, we see this time and time again. In times of sudden uncertainty, there is a flight to quality across the board – and that includes capital shifting away from gold. Investors want cold, hard cash, with everything else plummeting, in these sudden onsets of volatility. The past couple months are a good example of this, as the Russian war has rocked the geopolitical climate and uncertainty reigning supreme.

So while markets are highly turbulent right now, gold has done what it often does – followed the market. Of course, the returns are nowhere near as negative as stocks or other risk-on assets – see below graph – but it does shed some value.

However, if this downturn turns out to be a sustained bear market and history is to repeat itself, gold should move upwards. The pattern thus far year-to-date matches what we seen before – a slight downtick as the rest of the market nukes. If the market stays red and this becomes the norm, gold would be following the historical pattern if it began to hold and rise counter-cyclically.

Inflation

One final factor I want to analyse before signing off is the correlation between inflation and gold’s returns. This is pertinent given the current climate of rampant inflation and slowing growth, in other words, an economy’s worst nightmare.

CPI of 8.3% was announced yesterday for April, meaning inflation is still hovering at 40-year highs. I plotted gold’s annual returns against the year-over-year inflation rate since 1970, and calculated the correlation coefficient at a relatively boisterous 0.55, suggesting a moderately strong relationship. The graph below details the movements in percentage terms, and it’s clear to see the relationship visually.

Conclusion

To conclude, we are currently seeing the EU and UK on verge of recession, markets in a sharp decline and fear spreading throughout the economy that a long-overdue correction is finally imminent (if not here already). Historically speaking, this plays out as a promising set-up for gold should the bear market persist beyond just short-term volatility.

Should it indeed turn out to be a persistent bear market, the added factor of high inflation remaining a stark problem paints gold in an even more attractive light. It’s a relatively unique (and scary) set-up to have both heightened inflation and decreasing growth and sentiment, but for gold they are the factors that have propelled it in the past.

If history repeats, gold is well placed to capitilise in this market.

The post Does Gold really outperform during recessions and inflation? appeared first on Invezz.

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Economics

5 Top Consumer Stocks To Watch Right Now

Are these consumer stocks a buy amid the earnings season?
The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes,…

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5 Trending Consumer Stocks To Watch In The Stock Market Now         

As we tread through the earnings season, consumer stocks could be worth watching in the stock market this week. This would be the case since a number of big consumer names such as Costco (NASDAQ: COST) and Macy’s (NYSE: M) will be posting their financials for the quarter. As such, investors will be keeping an eye on these reports for clues on the strength of consumer spending amid this period of high inflation.

However, despite the soaring prices across the economy, it seems that consumers are surprisingly showing resilience. According to the Commerce Department, retail sales in April outpaced inflation for a fourth straight month. This could suggest that consumers as a whole were not only sustaining their spending, but spending more even after adjusting for inflation. Ultimately, it could be a reassuring sign that consumers are still supporting the economy and helping to diminish the narrative of an incoming recession. With that being said, here are five consumer stocks to check out in the stock market today.

Consumer Stocks To Buy [Or Sell] Right Now

Nordstrom

retail stocks (JWN stock)

Starting off our list of consumer stocks today is Nordstrom. For the most part, it is a fashion retailer of full-line luxury apparel, footwear, accessories, and cosmetics among others. The company operates through multiple retail channels, boutiques, and online as well. As it stands, Nordstrom operates around 100 stores in 32 states in the U.S. and three Canadian provinces.

Yesterday, the company reported its financials for the first quarter of 2022. Starting with revenue, Nordstrom pulled in net sales worth $3.47 million for the quarter. This marks an increase of 18.7% from the same quarter last year. Its Nordstrom banner saw net sales rise by 23.5% year-over-year, exceeding pre-pandemic levels. Next to that, its Nordstrom Rack banner saw a 10.3% increase in net sales from last year. Besides, net earnings were $20 million, with earnings per share of $0.13 for the quarter. Considering Nordstrom’s solid quarter, should you invest in JWN stock?

[Read More] Best Stocks To Invest In Right Now? 5 Value Stocks To Watch This Week

The Wendy’s Company

best consumer stocks (WEN stock)

Next up, we have The Wendy’s Company. For the most part, it is the holding company for the major fast-food chain, Wendy’s. Being one of the world’s largest hamburger fast-food chains, the company boasts over 6,500 restaurants in the U.S. and 29 other countries. The chain is known for its square hamburgers, sea salt fries, and the Frosty, a form of soft-serve ice cream mixed with starches. WEN stock is rising by over 8% on today’s opening bell.

According to an SEC filing, Wendy’s largest shareholder, Trian Partners, is looking into making a potential deal with the company. Trian said that it is considering a deal to “enhance shareholder value.” Also, the firm adds that this could lead to an acquisition or business combination. In response, Wendy’s stated that it is constantly reviewing strategic priorities and opportunities. It added that the company’s board will carefully review any proposal from Trian. Given this piece of news, will you be watching WEN stock?

[Read More] 4 Semiconductor Stocks To Watch In The Stock Market Today

Foot Locker

FL stock

Another stock investors could be watching is the shoes and apparel company, Foot Locker. In brief, the company uses its omnichannel capabilities to bridge the digital world and physical stores. As such, it provides buy online and pickup-in-store services, order-in-store, as well as the growing trend of e-commerce. Some of its most notable brands include Eastbay, Footaction, Foot Locker, Champs Sports, and Sidestep. Last week, the company reported its results for the first quarter of the year.

For starters, total sales came in at $2.175 billion, a slight uptick compared to sales of $2.153 billion in the year prior. Next to that, Foot Locker reported a net income of $133 million. Accordingly, adjusted earnings per share came in at $1.60, beating Wall Street’s expectations of $1.54. CEO Richard Johnson added, “Our progress in broadening and enriching our assortment continues to meet our customers’ demand for choice. These efforts helped drive our strong results in the first quarter, which will allow us to more fully participate in the robust growth of our category going forward.”  As such, is FL stock one to add to your watchlist? 

Tyson Foods 

TSN stock

Tyson Foods is a company that built its name on providing families with wholesome and great-tasting protein products. Its segments include Beef, Pork, Chicken, and Prepared Foods. With some of the fastest-growing portfolio of protein-centric brands, it should not be surprising that TSN stock often comes to mind when investors are looking for the best consumer stocks to buy. 

Earlier this month, Tyson Foods provided its fiscal second-quarter financial update. The company’s total sales for the quarter were $13.1 billion, representing an increase of 15.9% compared to the prior year’s quarter. Meanwhile, its GAAP earnings per share climbed to $2.28, up 75% year-over-year. According to Tyson, these financial figures are a reflection of the increasing consumer demand for its brands and products. To top it off, the company was also able to reduce its total debt by approximately $1 billion. Thus, does TSN stock have a spot on your watchlist?

[Read More] Stock Market Today: Dow Jones, S&P 500 Rise, Wendy’s Stock Gains On Potential Deal

DoorDash

food delivery stocks (DASH Stock)

DoorDash is a consumer company that operates an online food ordering and delivery platform. In fact, it is one of the largest delivery companies in the U.S. and enjoys a huge market share. The company connects hundreds of thousands of merchants to over 25 million consumers in the U.S., Canada, Australia, and Japan through its local logistics platform. Accordingly, its platform allows local businesses to thrive in today’s “convenience economy,” as the company puts it.

On May 5, the company reported its first-quarter financials for 2022. Diving in, it posted a revenue of $1.5 billion, growing by 35% year-over-year. This was driven by total orders that grew by 23% year-over-year to $404 million. Along with that, it reported a GAAP gross profit of $662 million, an increase of 34% year-over-year. The company said that it added more consumers than any quarter since Q1 2021, due in part to the growth of its DashPass members. The growth in Monthly Active Users and average order frequency has helped it gain share in the U.S. Food Delivery category this quarter as well. Given DoorDash’s performance for the quarter, should you watch DASH stock?

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The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Economics

Finding Shelter in an Inverse ETF

As the old saying goes, “What goes up must come down.” Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued…

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As the old saying goes, “What goes up must come down.”

Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued effects of supply chain disruptions amid the COVID-19 pandemic, tech stocks, including semiconductors, were the darlings of the investment world. That is, it seemed as if the sky-high valuations of some tech stocks were sustainable in an atmosphere of seemingly perpetual growth.

That, of course, was not the case, and the too-good-to-be-true valuations were quickly brought down to earth by the forces of inflation and tight monetary policy. As a result, the tech-heavy Nasdaq entered a free-fall that has not yet found a bottom.

At the same time, that does not mean that we should abandon the sector as a lost cause. One such way to play the sector during its downhill slide is the exchange-traded fund (ETF) Direxion Daily Semiconductor Bear 3X Shares (NYSEARCA: SOXS).

As its title suggests, this is an inverse ETF, meaning that it is built to go up in value when its parent index goes down. Specifically, SOXS provides three times leveraged inverse exposure to a modified market-cap-weighted index of semiconductor companies that trade in American markets by using swap agreements, futures contracts and short positions.

While the index’s holdings are weighted by market capitalization, the fund’s managers cap the weights of the top five securities in the portfolio at 8% each. The weight of the remaining securities is capped at 4% each.

As of May 24, SOXS has been up 0.37% over the past month and up 24.73% for the past three months. It is currently up 60.47% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $258.15 million in assets under management and has an expense ratio of 1.01%.

In short, while SOXS does provide an investor with a way to invest in an inverse ETF, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

The post Finding Shelter in an Inverse ETF appeared first on Stock Investor.

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Stocks

Will Albertsons outperform due to its high return on equity for low beta?

Albertsons Companies Inc. (NYSE:ACI) is trading at $29. The stock has risen 81.25% from the IPO in the last quarter of 2020. In the two years since going…

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Albertsons Companies Inc. (NYSE:ACI) is trading at $29. The stock has risen 81.25% from the IPO in the last quarter of 2020. In the two years since going public, Albertsons Companies paid dividends each quarter. The annual dividend currently stands at $0.48, with a yield of 1.64%.

Albertsons is rated high on both value and growth. The company’s heritage has been built over the years since its founding in 1939. Today, the company is the second-largest traditional grocer in the US.

The company went public during a pandemic to fund new growth opportunities. However, it faces the headwinds of inflation and bear markets. Despite pressures, Albertsons will be among the few stocks that will outperform the market.

The ROE stands at 74.48%. This is a fundamental strength that should make investors troop to Albertsons. The EPS is at $2.8 and growing at more than 6.13%. At the valuation of $29, the PE is just about 10. All this for a beta of only 0.3, indicating a low risk.

Albertsons has support at $26.80 and resistance at $36.75

Source – TradingView

Albertsons has support at $26.80. This week, the stock has been bullish, having gained 7.82%. It is among a handful of stocks that have been braving the bear markets. This analysis projects that the stock will face some resistance at $36.75. However, it would break out at the next earnings release on July 28. If an investor were to take a position today, there is the likelihood of enjoying significant gains by the next earnings call.

Summary

Albertsons is an attractive value and growth stock. The share is trading at $29 with a price target of $36 by the end of July. Albertsons is also emerging as an attractive dividend stock.

The post Will Albertsons outperform due to its high return on equity for low beta? appeared first on Invezz.

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