Investors may not be as placid as sky-high equity and gold prices suggest, according to one veteran market watcher, who added that commodities are signaling that “all is not right in toy land.”
Coronavirus fears, U.S. trade relations and mounting geopolitical risks have roiled markets worldwide since the start of the year, analyst Dan Dicker told Yahoo Finance. With stocks closing at new record highs on Thursday — barely a week after being walloped by China’s spiraling epidemic — the former oil trader declared himself “exhausted” by all the volatility.
“There’s been a lot of bounce back and we can’t say that’s isn’t good,” Dicker told “The Final Round.”
However, “at these lofty levels there [are] some indicators in the commodity market that [are] saying that all is not right in toyland, it’s not all Disneyland here.” He argued that investors “shouldn’t be so quick” to plow money into valuations that look stretched.
According to Goldman Sachs, current valuations are trading at 19 times forward earnings per share. Valuations are "above historical averages but [are] consistent with the low interest rate environment." The bank warned that the upcoming U.S. general elections and attendant policy uncertainty would pose “downside risk” to stocks.
Those same uncertainties also have Dicker worried. He explained that gold (GC=F) and copper (HG=F) levels were a proxy for people concerned about a potential downturn.
Over the last year, bullion — a safe-haven asset — has surged by double-digits, which is curious given a stock market that’s consistently hit record highs.
“Gold to me has always been to me the tinfoil hat commodity,” Dicker joked to Yahoo Finance. “It's the end of the world, apocalypse commodity, monetary substitute commodity” and an asset for nervous investors seeking shelter, he said.
Copper, meanwhile, is a stand-in for the manufacturing sector and is down nearly 9% over the same time frame. Dicker called the current ratio between the two metals “very scary” and sitting at levels not seen since the 2008 financial crisis.
“The tinfoil hats are out in force, and the manufacturers are ducking behind the haystacks,” he added.
Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek
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