Following my Next Stock Market Crash post, painting a dooms day picture for the US, I thought worthwhile giving some views on what asset(s) might perform best - and what others think might do well (please comment below).
As we all know the US is overdue a recession. That led to my first piece of digging, what US sectors performed best in the Dot-Com crash and 2008 crash?
Well, other than Consumer Staples in the Dot-Com crash (+1.2%) all other sectors each time have been negative; ranging from -17.2% (Health Care Dot-Com) to -81.9% (Technology Dot-Com). Therefore, applying that history lesson, my view is that no sector is likely to perform well during the next recession. That leads to looking at what asset has performed best during recession.
Since 2001 - H1 2017 every time the S&P500 has produced a negative annual return the annual return of Gold has been positive.
From 1970 - 1980 Gold was up c 2,300% whilst the S&P500 returned c 14% (ex-dividends).
From late 2004 to early 2012 Gold returned c 255% vs a 9% return for the S&P500.
Certainly Gold has historically performed well in difficult market environments. Since late 2011 to late 2018 Gold has returned -34% whilst the S&P500 and FTSE100 have returned 134% and 34.50% respectively (ex-dividends). Clearly, Gold has under-performed in the last 7 years.
Given the market conditions and what's the on the horizon, could buying Gold now / increasing exposure gradually be a good idea?
Over the last 15 years, in sterling terms, gold has produced an average annual gain of 11.3%. It never ceases to amaze me that not many people appear to have an allocation to it in their portfolio. You don't need to be bullish or bearish on gold, just accept that long term, it generates acceptable returns that are not correlated to the market.
Ray Dalio suggests everyone should have a 5-10% allocation, perhaps more towards the end of a cycle. And really, he knows more than I ever will.
