The U.S. stock market posted another strong quarter, extending the momentum seen in Q2. This performance largely reflects a growing sense of optimism among investors regarding AI (artificial intelligence). And despite recent sluggishness in employment growth, corporate earnings overall remain resilient, with many companies continuing to report healthy profit growth, an important signal that the underlying fundamentals of the economy remain intact.
Investor sentiment has also improved from earlier this year. Concerns over tariffs, which dominated headlines in the spring, appear to be fading. Instead, attention has turned to monetary policy, where the Federal Reserve has entered a renewed easing phase. This pivot has sparked interest in sectors that had previously underperformed, particularly housing. With interest rates trending lower, affordability is improving for prospective buyers who were previously sidelined by high borrowing costs and elevated home prices.
While the overall tone remains constructive, we believe it is important to acknowledge several emerging risks. The recent federal government shutdown may be an early sign of continued gridlock in Washington, particularly around efforts to rein in rising fiscal deficits. Another area of concern is the diminishing independence of the Federal Reserve. The central bank has faced increased political pressure, raising questions about its ability to maintain an independent stance in setting policy. Finally, equity valuations remain elevated by historical standards, which could limit upside potential and increase market vulnerability to external shocks.
In light of these dynamics, our investment approach remains grounded in discipline and risk management. Our equity selection process continues to favor high-quality companies with sustainable growth prospects that are trading at modest valuations. We believe this strategy can help an investor capture market upside while helping to protect the downside as the markets continue to evolve.
The Fort Knox of an Investment Portfolio
The performance of gold (as well as other precious metals) has significantly exceeded most other asset classes so far this year. Moreover, while the equity and fixed income markets have been choppy throughout the year, gold investments have been helping minimize portfolio volatility. We have always embraced the notion of having a strategic allocation to gold in periods of elevated macroeconomic risk. But we currently favor gold mining stocks over physical gold. Many gold mining stocks have benefitted from the surge in the price of gold with returns far outpacing the returns of physical gold. With the gold price rising about 50% year-to-date, the expected earnings of leading gold mining companies have been accelerating. This dynamic has reinforced our view that gold equities can continue to serve as both a growth engine and a defensive anchor within diversified portfolios.
Although we’ve recently trimmed our gold allocation, we see compelling reasons for maintaining a healthy exposure. We see gold stocks as attractively valued relative to equity market risk while offering a meaningful hedge against macroeconomic uncertainties. In particular, concerns over a weakening U.S. dollar and questions surrounding the Federal Reserve’s independence have heightened the appeal of gold as a store of value. Additionally, rising global sovereign debt levels have prompted both institutional investors and central banks to expand their gold holdings. This trend underscores gold’s enduring role as a safe haven in times of fiscal and monetary stress. In our view, gold and gold-related equities continue to merit a place in well-balanced portfolios. As we navigate an environment marked by policy uncertainty and elevated debt burdens, we believe gold remains a reliable asset, providing resilience in volatile markets.
This article is provided for informational and educational purposes only. The information contained herein is not intended and should not be construed as individualized advice or recommendation of any kind. Where specific advice is necessary individuals should contact their professional regarding their circumstances and needs. Any opinions and forward-looking statements expressed herein are subject to change without notice. The information provided herein is believed to be reliable, but we do not guarantee accuracy, timeliness, or completeness. It is provided “as is” without any express or implied warranties. There is no assurance that any investment, plan, or strategy will be successful. Investing involves risk, including the possible loss of principal. Nothing herein should be interpreted as an indication of future performance. Past performance is no indication of future results. Investment Advisory Services are offered through Mariner Independent Advisor Network (MIAN), an SEC Registered Investment Adviser. Caplan Capital and MIAN are not affiliated entities.