GLD Shines as SPY Soars: What the Rare Dual Rally Means
Both rising together suggests a complex market environment.
Investors are signaling optimism and worry as stocks and gold surge together this year.
The broader stock market, as measured by the SPDR S&P 500 ETF Trust (SPY), is up nearly 22% this year, more than double its historic average return, while gold, as measured by the SPDR Gold Shares ETF (GLD), is up 32%, pacing toward its best year since 1979.
When stocks and gold perform well simultaneously, it sends a unique signal reflecting optimism about economic growth and concerns over potential risks or uncertainties.
Historically, these asset classes tend to move in opposite directions, as stocks perform well in times of economic expansion, while gold, a safe-haven asset, typically rises during periods of market uncertainty or inflation. However, when both rise together, it suggests a complex market environment.
A simultaneous rise in stocks and gold may indicate that while investors are optimistic about corporate earnings and economic growth (leading to rising stock prices), they are also hedging against potential risks like geopolitical tensions, inflation, or economic instability, which pushes gold prices higher.
Historically, this pattern has often signaled a late-stage economic expansion, where the stock market is still rising but investors are becoming more cautious about future risks.
SPY and GLD Outperformance: What’s Next?
In past instances, a period of simultaneous gains in stocks and gold has been followed by a market correction in one of the two major assets. For example, After the 2008 financial crisis, both stocks and gold performed well during the 2010-2011 period. After gold peaked in 2011, concerns about inflation diminished, and the global economy continued to stabilize.
Gold entered a prolonged bear market, while stocks continued to perform well, fueled by a low-interest rate environment and recovering corporate earnings. Gold's fall was sharp, but stocks maintained their upward trend, leading to a multi-year bull market.
Looking forward, 2024’s dual rise for stocks and gold might precede:
- Inflationary pressures: Continued strength in both stocks and gold may signal growing inflation concerns, potentially prompting central banks to pause their rate-cutting cycle or even raise rates again, potentially weighing on both asset classes.
- Market volatility: The combination of stock market exuberance and demand for safe-haven assets like gold may indicate that investors are preparing for increased volatility or a stock market correction.
Ultimately, investors are wise to hold a diversified mix of multiple asset classes, including stocks and bonds, while some investors may wish to further diversify with commodities like gold or other precious metals, all of which can be accessed by holding ETFs.
For more information on diversifying with ETFs, see our article, How to Build an ETF Portfolio in 7 Steps.