As Americans head off to Independence Day celebrations, they’ll be greeted with a plethora of headlines about record highs in the U.S. stock market. What I find most interesting about the latest bout of exuberance is the fact that priced in gold, stocks remain far below last fall’s peak.
From my perspective, a real equity bull market is one where the stock market, in this case the S&P500, consistently hits new highs relative to what’s historically been the world’s politically-neutral monetary asset, gold; and the U.S. stock market did exactly that from August 2011 until September 2018. Though equities in nominal terms bottomed in March 2009, we didn’t really get the all clear in my view until equities started rallying versus gold in late summer 2011.
U.S. stocks continued to hit new highs via this ratio until the most recent high in September 2018. This represented a seven year equity bull market of historic proportions, but since last fall the ratio has consistently lagged nominal highs in stocks as you can see in the chart below.