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‘Everything Bull’ Likely to Continue for Stocks, Commodities - But for How Long?

Published 08/04/2024, 12:44
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  • Gold's surge this year, driven by factors like geopolitical tensions and central bank purchases, may push futures to $2,500.
  • Meanwhile, oil benefits from Middle East tensions and OPEC cuts.
  • Could the S&P 500 continue to rally amid the rising demand for crude oil and gold?
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  • Gold continues to soar, marking new all-time highs and outperforming the S&P 500 with an impressive 13.7% surge since the beginning of the year.

    Gold Price Chart

    Several factors are fueling this bullish trend:

    • Gold becomes more appealing when interest rates drop, as investors seek safer assets. Forecasts of rate cuts by the Fed this year have bolstered gold's allure. While initial predictions suggested up to six rate cuts, expectations have now scaled back to two or three, signaling a ceiling for rate hikes.
    • Geopolitical tensions, particularly conflicts involving Russia, Ukraine, and the Middle East, heighten gold's status as a traditional safe haven asset, attracting investors seeking refuge.
    • Demand remains robust in key markets like India and China. India, a major gold buyer, continues to show strong demand, especially among retail investors. Similarly, China, the world's top gold importer, has seen better-than-expected demand post-Lunar New Year festivities. Declines in the Chinese real estate and stock markets have further fueled interest among retail investors. Additionally, central banks, notably the People's Bank of China, have been increasing their gold purchases.

    With these factors expected to persist in the coming months, gold is poised for continued upward momentum. Some on Wall Street predict gold futures could reach $2,500.

    Meanwhile, crude oil has also witnessed a significant uptrend this year. Brent futures, for example, started the year at $77.39 and surged to $91.90 last week.

    Crude Oil Price Chart

    Key drivers behind oil's rally include:

    • Escalating geopolitical tensions in the Middle East, with potential implications for the region's stability. This situation could prompt other players, such as Iran and Hezbollah, to play a more significant role.
    • Production cuts by OPEC member countries.

    The focus now shifts to the $94-95 price range, which remains the mid-term target for the oil bulls.

    Could S&P 500 Keep Rising As Well?

    This pattern in the S&P 500 is quite intriguing and typically reliable, and we're currently experiencing it.

    Here's how it works: if the S&P 500 doesn't end the first quarter below the lowest point it reached in December, it tends to end the rest of the year with strong gains.

    S&P 500 Price Chart

    Looking at the data from the past 73 years, we see that this pattern was triggered in 37 instances, and it succeeded in 36 of them, with only one failure (in 2015 with a -0.7% return).

    On average, the return for the rest of the year is +11.2%, and for the full year, it's +18.8%.

    Since the index closed above that level this quarter, could we expect to see stocks, gold, and crude oil prices rise together?

    Only time will tell.

    Ranking of the Stock Exchanges in 2024

    So goes the ranking of the world's major stock exchanges so far in 2024:

    Investor sentiment (AAII)

    Bullish sentiment, i.e. expectations that stock prices will rise over the next six months is at 47.3% and remains above its historical average of 37.5%.

    Bearish sentiment, i.e. expectations that stock prices will fall over the next six months, is at 22.2% and remains below its historical average of 31%.

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    Disclaimer: The author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered as investment advice.

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