Top Heavy Stock Market?

Are you adequately diversified?

“The overvaluation of US stocks has now surpassed the level that brought the stock market crashing down in 1929. At a rating more than double that of their British and European counterparts, and the highest since the peak of the dotcom bubble, US equities are in for a hairy decade.”

—The Telegraph

The World Gold Council’s research repeatedly confirms that when added to a portfolio, gold is known to enhance risk diversification effects because of its consistent low correlation with other traditional assets.

We think that mere diversification is a lower order rationale for owning gold. But it is worth emphasizing today with the U.S. stock market trading at historically high levels.  A growing number of experienced investors and thoughtful analysts are noting that the risk in stocks has grown acute.

Recent headlines to that effect should grab and hold your attention:

One of market’s most reliable long-term indicators flashing red…

Treasury Has Internal Report Warning About AI Bubble…

BOFA: ‘Speculation hitting extreme levels’…

Here is a bullet point rundown of the reasons the stock market may be luring many at their peril:

1. Valuations are historically extreme

• The forward price-to-earnings (P/E) ratio for the S&P 500 is well above its long-term average. 
• The Shiller CAPE ratio, developed by Robert Shiller, has often been near levels previously seen before major bear markets such as 1929 and 2000. 
• Warren Buffett’s favorite broad valuation measure—the ratio of total stock market value to GDP, often called the “Buffett Indicator”—has also remained historically elevated.

2. A handful of stocks are carrying the market

• Indexes appear broadly healthy. 
• Underneath, leadership is unusually narrow. 
• If those few companies stumble, the indexes could fall sharply. 

3. Expectations for artificial intelligence may be overly optimistic

• AI probably will increase productivity. 
• But current stock prices may already discount ten years or more of exceptional profits. 

4. Earnings assumptions may be too optimistic

Current prices assume that:

• profit margins remain unusually high 
• economic growth continues 
• inflation remains manageable 
• no recession occurs 
• geopolitical risks stay contained

It sets off alarms whenever we hear the phrase “this time is different” applied to the stock and bond markets, as well as to the governments unrestrained spending and soaring debt.  

It’s never really different. 

While diversification is an important part of portfolio management in normal, economically healthy times, it is utterly inadequate in the environment of currency failure and a global monetary reset.  In such times, wealth preservation should be a foremost concern and a minor diversification into gold and silver will be seen as insufficient protection.

Those that do not recognize these signs of the times and remain traditional stock investors are still invited to visit with a Republic Monetary Exchange gold and silver professional to learn how to responsibly diversify their portfolios.