Stocks finished the first week of August mostly higher as strong earnings reports and upbeat economic data kept lingering bullish sentiment alive. The Nasdaq 100 index did not perform as well as its two other benchmark index peers, the S&P 500 and the Dow Jones Industrial Average.

For the week, Nasdaq 100 futures posted a small decline of 0.35% while S&P 500 futures had minimal gains of 0.05%. The Dow Jones stole the spotlight as it made its 8th all-time record high on Friday and closed out the week with impressive gains of 1.07%.

Although much of the week’s gains came from robust earnings reports, a stronger-than-expected July jobs report released by the Bureau of Labor Statistics provided a moderate boost to stocks on Friday. Analysts on Wall Street were forecasting an increase of 175,000 jobs for the month of July. The report blew those expectations away as it stated employers added 209,000 new jobs.

Moreover, the unemployment rate touched a fresh 16-year low of 4.3%. Both of these metrics are seen as indicators that the labor market is healthy and improving.

However, it’s not only market analysts who are obsessed with jobs reports. The Federal Reserve closely monitors every jobs report to gauge whether the economy can tolerate interest rate alteration.

One of the key events that will affect the prices of stocks and everyone’s favorite precious metal, gold, will undoubtedly come later this year when the Federal Reserve announces their much-anticipated interest rate decision.

Many market participants are expecting one more rate hike before the end of the year. However, with the exception of July’s jobs report, much of the economic data recently released has been relatively weak. This is leading some folks to speculate that the Federal Reserve may not increase their benchmark lending rate after all.

Referring to the jobs report data, Jeff Zipper, the managing director of investments at U.S. Bank Private Client Wealth Management, noted how “the number came in above consensus, but in the ballpark we were expecting, so we’re taking it in stride. There were no big surprises, and net-net, I think the Federal Reserve remains on track for one more interest rate hike this year after this.”

As a general rule, rising interest rates are somewhat detrimental to stocks and commodities because the increased cost of borrowing. When the cost of borrowing rises, investors like to purchase yield-bearing assets like Treasury bills, bonds, and other forms of fixed-income investments.

Despite the strong jobs numbers buoying markets, individual stocks played a major role in last week’s gains as well.

Apple Inc., the largest company in the world by market capitalization, posted outstanding Q3 earnings as it topped iPhone sales estimates and quashed any fears that smartphone market is slowing.

Apple’s stock, which trades under the symbol AAPL, soared more than 6% to make an all-time high of $159.75 in after-hours trading.

Apple’s earnings are particularly important because it is the largest company in the world by market capitalization.

For the Dow Jones Industrial Average Index, which made an all-time high on Friday, Apple’s portion of the index is a significant 4.84%. Since Apple traded approximately 6% higher, strong gains in the Dow were in order. The Dow Jones made fresh all-time highs every day of last week marking eight consecutive record closes.

On the commodities front, gold fell almost $12, or -0.91%, in the wake of the strong jobs report but still remains well above $1,250 per ounce.

For now, it seems the two expected driving forces of the market are the remaining earnings reports from large-cap companies and additional economic data that might alter the Fed’s monetary agenda. However, dramatic market moves are always unexpected, and August is historically a poor month for stocks and consequentially a strong month for gold. As such, even with stellar company earnings, investors are staying on their toes, especially with the market at all-time highs.

Since 1975, Blanchard has successfully helped 450,000+ clients invest wisely in precious metals and rare coins. Our team of experts are always here to help you make the right investment decisions and capitalize on opportunities in the precious metals market.

Call us today at 800-880-4653

Amid the fervor of a surging stock market there remains a less discussed data point lurking. The U.S. dollar has dropped 9% year to date against an index of other currencies. Some have attributed this slide to an early April comment from President Trump who lamented that “our dollar is getting too strong.” Eventually, he concluded, “that will hurt ultimately.” Meanwhile, it’s also likely that the gradual interest rate hikes we’ve seen have contributed to the decline.

Interestingly, some have posited that this definitive fall in value portends a brighter future for gold. In examining this phenomenon, one can turn to a 10-year comparison chart of The London Bullion Market (LBMA) fix gold price in relation to the daily closing price for the broad trade-weighted U.S. dollar index. The long-term picture reveals a clear inverse relationship.

For example, in mid-May of 2008 the dollar had sunk to one of its lowest points in recent history. At the same time gold was on a strong ascent choosing to rise as the dollar fell. Less than one year later the dollar began to make a sharp recovery while gold descended. Through the entirety of the 10-year span the relationship follows this “X” pattern where a rise in one asset begets a fall in another.

It’s important to note that this relationship, like nearly all in finance, is not a law of physics. There are periods when the two move in the same direction. In fact, Citi Research has gone as far as to state, unequivocally that “Commodity prices have traded in a strong inverse relationship with the U.S. dollar over the past decade or so, but this relationship broke down in late 2016 and the breakdown looks here to stay.”

Some may argue that data from just 2016 onward is insufficient to reach a conclusion that contradicts a decade of patterns. The main underpinning to their argument is that a reduction in volatility in the commodities market as well as a broad recovery from the global financial crisis has brought the negative relationship to an end.

Today we’re witnessing the dollar close at values nearing a 13-month low and investors are beginning to turn their attention, once again, to gold. Those asking how this trend will play out are looking to political headlines for clues. Economic policies designed to spur growth have not yet materialized amid a new administration. “There seems to be very little progress being made on a number of ‘pro-growth’ Trump initiatives, all being net bullish for gold,” remarked an analyst with INTL FCStone.

In the meantime, investors are leaning on comments from the Fed for clues on gold’s direction. While additional rate increases are certainly possible it’s also likely that such expectations have already been priced into the market. Some analysts have remarked to The Financial Times that they hold a near-term target at $1,300 per ounce after weighing all the conditions.

Today, the correlation between commodities like gold and the dollar continue to evolve. However, for the long-term investor this holds little sway. The gradual, but significant rise in gold over an extended period always offers value.   

Last week was another wild week for stocks in the United States. All three benchmark stock indices soared to new levels as each index set a new all-time high on Thursday.

Emini S&P 500 futures made a new high of 2480.50, while Nasdaq 100 futures printed at $5995.75, stopping just short of the key psychological level of $5,600. Emini Dow Jones Industrial Average futures set an all-time high on Thursday of $21,475, and then went on to break that record on Friday by climbing to $21,753.

It seems all-time market highs have become the new norm of 2017. However, as the old expression goes, “what goes up must come down.” That maxim rang true for stocks on Thursday afternoon.

The Nasdaq 100 led a very swift decline almost immediately after making its all-time high. Prices plunged over 1.5% in a matter of an hour before rebounding slightly to close out the day.

The tech-fueled decline caused additional weakness for the entire stock market. For market participants that have been keeping abreast of the markets, a pattern certainly seems to be emerging.

Markets make new record highs, technology stocks instigate declines, markets recover, and then the entire process repeats. For the most part, this is how markets have been functioning this year. Despite all of the abrupt sell-offs, the S&P 500 is up 1.8% since the start of the month and 10% since the start of the year.

Nevertheless, the startling declines immediately after all-time highs have been keeping investors on their toes. Some analysts on Wall Street are chalking up the dichotomy of all-time highs and startling sell-offs to seasonality.

“It is not surprising for market participants to take profits after a big rally, especially going into August, which is historically a difficult month,” said Quincy Krosby, chief market strategist at Prudential Financial.

On August 24^th of 2015, when China shocked the world by devaluing its currency, global markets suffered declines of more than 10% in one day. The Emini S&P, Dow, and Nasdaq futures were all halted by the Chicago Mercantile Exchange in an effort to put an end to the epic plunge. The VIX Index, also known as the fear gauge, briefly jumped as much as 90% to print above 50.00 due to sheer fear and uncertainty.

Although the past is no indication of the future, there definitely seems to be some merit to the idea of stock market vulnerability in the month of August.

Having said that, for the last trading week of July, gold is made its third consecutive weekly gain. Although prices seemed to be buoyed by reports of missile tests in North Korea last week, declines in the US dollar certainly added to the cause. A GDP report, which was released on Friday, was expected to help the weakening dollar and hurt gold, but analysts found few reasons in the report for the Federal Reserve to alter is cautious and slow rate-hike agenda.

Going into the month of August with a somewhat-dovish Fed and historical market abnormalities as an ominous precedent, all signs seem to support the fundamental thesis to own a piece of the yellow metal.

Since 1975, Blanchard has successfully helped 450,000+ clients invest prudently in precious metals and rare coins. Our team of experts are always here to help you make the right investment decisions and capitalize on opportunities in the precious metals market.

Call us today at 800-880-4653