Last year ended on a near-euphoric note for stock market bulls and optimists about the Trump administration economy.
President-elect Donald Trump had been driving growth expectations and moving markets as if he already was in office, implementing his much-vaunted policies.
With so much “good news” already priced in, investors would be wise to hedge themselves against the risk of an eventual disappointment.
As Americans, we certainly should give the new president and the Republican Congress an opportunity to make good on their promises. But as investors, we need to prepare for a variety of economic scenarios, not just the ones that we hope will come true nor just the ones that align with what GOP pundits are spinning.
Of course, gold bugs have a reputation for being pessimistic. It is true that gold tends to thrive more on fear than hope.
However, one need not hold a doom and gloom view of the economy to appreciate the value of including gold, silver and other hard assets in a portfolio.
If the economy picks up speed this year, then so likely will inflation. That, in turn, could cause investors to flee bonds and other interest rate-sensitive financial assets.
The flight from bonds has actually been well under way since the third quarter.
As of yet, there hasn’t been any flight from the dollar or U.S. stocks. Both the U.S. Dollar Index and the S&P 500 finished last year near multi-year highs, respectively.
With the Federal Reserve telegraphing three rate increases this year, the conventional wisdom is for continued dollar strength.
A stronger dollar could throw Trumponomics off course. A rising U.S. currency versus the rest of the world makes it harder for exporters to compete in the global marketplace.
Source: The Street