As some start fearing the stock market crash of 2018 is underway we recommend to stay rational and only focus on the facts. As the 40 year bond bull market is coming to an end we start seeing sector rotation taking place. This article visualizes our point in a way we could have never have explained. Interestingly the first trend we start seeing is an exodus from broad (stock) markets to precious metals stocks, which, by the way, is also in line with our silver stocks forecast 2019.
We can’t stress enough the importance of the 4-decade breakdown in the bond bull market.
In other words, a massive level of capital, never seen before, in the order of $40 trillion, will start moving around. Obviously, not all of it, but a considerable part will move elsewhere. Can anyone imagine what will happen if this becomes a trend into the same direction. Correct: stampede.
Do we know at this point in time in which direction exactly markets will trend? The answer is “no”, and the key point is that new trends will become visible, so it is imperative to monitor markets very closely now, all markets, in order to understand which trend(s) will arise.
It will have major implications for markets, the point is that the market will decide which ones. So it is crucial to pay attention to the new trends that arise in the next few days, weeks and months.
One of the new trends we see, and the market is very close to confirming the trend, is the inverse correlation between broad stock markets and precious metals stocks.
We can write books about market sector rotation, but, as always, one visual can tell much more than 1000 words. That’s why we have included what we consider this must-see chart below. It shows at the top the Russell 2000 index, our leading indicator for small cap stocks, followed by precious metals stocks, represented by the GDX ETF (GDX).
The one chart is a mirror of the other chart.
That’s what sector rotation is about: capital flowing from one asset / market / sector to another one.
Right now, the outflow of bond markets is somehow leading to an inflow in gold, silver, palladium and precious metals stocks. This trend is almost confirmed: we need a small push lower in stocks and small push higher in precious metals stocks for a confirmation.
Smart investors are ok pulling their capital from one weakening sector into another strengthening sector.