The Few Asset Classes that are On Sale

The S&P 500 finished the week essentially unchanged. Volume was light, but some of this was due to the fact that many traders take vacations during this time of year. Volatility remained stuck near the lows of the 2018 trading year…..levels that are still notably higher than those enjoyed for most of 2017.

In US macro news, the results were mixed. Retail sales, industrial production, business inventories, and the housing market index all met their respective expectations. Initial jobless claims and leading indicators both beat their consensus estimates. And housing starts missed.

For two weeks in a row now, the Fed has made almost no changes to the size of its balance sheet. This means that a fairly severe reduction during the last two weeks of the month must happen for the monthly total target to be achieved.

In terms of technical analysis, the weekly charts are still bullish. While most of the technical damage from the big pullback earlier this year has been repaired, all the damage will not be repaired until….or unless….the S&P makes new all-time highs. This has not happened. On the daily charts, while the overall signal is bullish, there are some signs that upward momentum is waning and that some sort of pullback could arise soon.

So while the US economy is hanging in there, and while US equity (and credit) markets are still enjoying near record highs, there are some other asset classes that have fallen off in price…..and for investors who are looking for value, these asset classes should be considered.

In the US, the entire MLP asset class is still far off the highs reached in 2014; in fact, as a group, this asset class is over 50% below those record highs.

Precious metals—gold, silver and platinum—have been in a cyclical bear market for several years now, and all are cheap at least relative to their old cyclical high prices, prices reached many years ago.

Overseas, emerging market corporate and sovereign debt has, as a group, fallen back in price quite a bit. Part of the reason is the tightening process being led by the Federal Reserve, which is making dollar funding more expensive for EM corporations and governments. And to the extent the Fed continues to hike, this asset class could suffer even more price declines.

As most investors complain that all prices are high today, so there is no alternative to US stocks, the truth is that there are several major asset classes that are on sale. Sure they could fall even further in price, but buying assets 50%+ (MLP’s) off peak is a usually a much better decision than buying assets only 1-2% off peak (US stocks).

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