Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 8 Oct - Gold trumps AI as dollar rebounds, Lloyds up and Oracle and Tesla slip
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Goldman Sachs raised its price forecast on the yellow metal to $4,900 by December 2026, citing durable central bank flows and ETF demand. It’s hard to argue against these points – it's the old 4D trade – debt debasement & dollar devaluation. This is all about currency debasement, declining confidence in fiat currencies, a shedding of the dollar’s allure as a diversifier, persistently high deficits and increasing political, institutional and economic fragmentation. That plus a good dose of speculative momentum. And no one is selling because they don’t want to have to get back in at a higher price when it’s the last resort. It’s exactly the point I have been pressing since May 2020 – the paradigm shift from a disinflationary to an inflationary regime, combined with governments unprepared to spend less; just as MMT moved from theory to de facto practice during the pandemic, investors realise that fiscal dominance has moved from a myth to logic.
This is also consistent with higher Bitcoin prices, which at around $121k are close to the weekend’s record highs. BlackRock’s iShares Bitcoin Trust (IBIT) is now close to $100bn in AUM as ETF flows remain strong.
I guess the other big question is what does this environment means for stocks? The 1970s wasn’t great for equities – stagflation meant corporate profits suffered and equities didn’t perform very well. So far we are not seeing anything like this play out as we continue to see record highs for global benchmarks. They didn't have AI in the 1970s.
Are we just naturally too pessimistic? Goldman, again, thinks so, at least in terms of the S&P 500 earnings season, which is about to kick off. Consensus is for S&P 500 earnings growth to slow from 11% in Q2 to 6% in Q3. That’s too low, says GS, which expects “positive surprises” from the Mag7 and for consumer spending to hold up much better than expected. Nevertheless, analysts are getting more bullish and increased earnings estimates throughout the quarter – the first time this has happened since 2021. And FactSet reports a record high number of S&P 500 tech companies issuing positive EPS guidance for Q3.
AI is clearly a bubble – the question is when not if it blows up. And timing is incredibly hard. Oracle had a stab at pricking the bubble yesterday by disclosing that the margins from its AI cloud business – including server rentals using Nvidia chips – are very slim. Shares fell 2.5%, but this seems quite modest against the monster ramp seen post-earnings. Tesla added to the gravity on the index as it dropped 4.5% on lower-priced Model 3/Y reveal that underwhelmed analysts.
Q3 earnings are still set to be strong, but doubts are being seeded for later. The S&P 500 pulled back almost 0.4%, ending a 7-day winning streak as worries started to creep in about AI. The Nasdaq Composite declined about two-thirds of a percent, while volatility crept higher, with the Vix to 17.
In London, the FTSE 100 rose back above 9,500 with a modest 0.2% gain at the open on Wednesday. The FCA’s motor finance redress was less than expected, giving a boost to financials, particularly Lloyds and Close Brothers, the two most exposed to this space. Lloyds rose 2.5% and Close Brothers was up over 5% before paring gains with the redress total estimated around £8bn, below the bottom end of the $9bn-$18bn range previously indicated. The usual crop of miners provided some extra ballast as metal prices moon. I looked at why the FTSE 100 could hit 10k this year last week.
Elsewhere, New Zealand’s Reserve Bank cut the policy rate by 50 basis points to 2.50%, more than the 25-basis-point cut expected, with policymakers citing a willingness to reduce the rate further to support the struggling NZ economy. The kiwi fell to its lowest against the USD since April on the decision.
German industrial production out this morning at -4.3% month-on-month and -3.9% YoY, far worse than the -1.0%/-0.9% expected. Along with the French troubles that was enough to push EURUSD to its weakest in over a month.
Key Points
- Spot gold breaks above $4,000 for the first time
- Dollar rallies to best in two months as euro and yen soften
- Lloyds rallies on FCA's motor finance redress bill
- Oracle slips as it warns AI cloud business margins are thin
Inflation, soaring debt, government spending...time to party like it’s like the 1970s. That means you should hold more gold than usual, according to Bridgewater founder Ray Dalio. Gold is the “most fundamental” harder currency, he argues.
Investors have clearly caught on to this already – gold futures rose above $4,000 for the first time yesterday and spot gold has blown through this level this morning. The break at $4,000 on the spot price triggered stops and we had a move straight up to near $4,050.
To illustrate how big a move this is it’s come as the dollar has ramped up against the weakness in the euro and yen, sending the dollar index to a 2-month high close to 99, which ought to be hold gold back. French political chaos hits the euro along with some dreadful German industrial production numbers this morning, while all bets are on the new Japanese leader pushing more stimulus and looser monetary policy, which has sent the yen to its weakest since February and USDJPY through 152.
Investors have clearly caught on to this already – gold futures rose above $4,000 for the first time yesterday and spot gold has blown through this level this morning. The break at $4,000 on the spot price triggered stops and we had a move straight up to near $4,050.
To illustrate how big a move this is it’s come as the dollar has ramped up against the weakness in the euro and yen, sending the dollar index to a 2-month high close to 99, which ought to be hold gold back. French political chaos hits the euro along with some dreadful German industrial production numbers this morning, while all bets are on the new Japanese leader pushing more stimulus and looser monetary policy, which has sent the yen to its weakest since February and USDJPY through 152.
Goldman Sachs raised its price forecast on the yellow metal to $4,900 by December 2026, citing durable central bank flows and ETF demand. It’s hard to argue against these points – it's the old 4D trade – debt debasement & dollar devaluation. This is all about currency debasement, declining confidence in fiat currencies, a shedding of the dollar’s allure as a diversifier, persistently high deficits and increasing political, institutional and economic fragmentation. That plus a good dose of speculative momentum. And no one is selling because they don’t want to have to get back in at a higher price when it’s the last resort. It’s exactly the point I have been pressing since May 2020 – the paradigm shift from a disinflationary to an inflationary regime, combined with governments unprepared to spend less; just as MMT moved from theory to de facto practice during the pandemic, investors realise that fiscal dominance has moved from a myth to logic.
This is also consistent with higher Bitcoin prices, which at around $121k are close to the weekend’s record highs. BlackRock’s iShares Bitcoin Trust (IBIT) is now close to $100bn in AUM as ETF flows remain strong.
I guess the other big question is what does this environment means for stocks? The 1970s wasn’t great for equities – stagflation meant corporate profits suffered and equities didn’t perform very well. So far we are not seeing anything like this play out as we continue to see record highs for global benchmarks. They didn't have AI in the 1970s.
Are we just naturally too pessimistic? Goldman, again, thinks so, at least in terms of the S&P 500 earnings season, which is about to kick off. Consensus is for S&P 500 earnings growth to slow from 11% in Q2 to 6% in Q3. That’s too low, says GS, which expects “positive surprises” from the Mag7 and for consumer spending to hold up much better than expected. Nevertheless, analysts are getting more bullish and increased earnings estimates throughout the quarter – the first time this has happened since 2021. And FactSet reports a record high number of S&P 500 tech companies issuing positive EPS guidance for Q3.
AI is clearly a bubble – the question is when not if it blows up. And timing is incredibly hard. Oracle had a stab at pricking the bubble yesterday by disclosing that the margins from its AI cloud business – including server rentals using Nvidia chips – are very slim. Shares fell 2.5%, but this seems quite modest against the monster ramp seen post-earnings. Tesla added to the gravity on the index as it dropped 4.5% on lower-priced Model 3/Y reveal that underwhelmed analysts.
Q3 earnings are still set to be strong, but doubts are being seeded for later. The S&P 500 pulled back almost 0.4%, ending a 7-day winning streak as worries started to creep in about AI. The Nasdaq Composite declined about two-thirds of a percent, while volatility crept higher, with the Vix to 17.
In London, the FTSE 100 rose back above 9,500 with a modest 0.2% gain at the open on Wednesday. The FCA’s motor finance redress was less than expected, giving a boost to financials, particularly Lloyds and Close Brothers, the two most exposed to this space. Lloyds rose 2.5% and Close Brothers was up over 5% before paring gains with the redress total estimated around £8bn, below the bottom end of the $9bn-$18bn range previously indicated. The usual crop of miners provided some extra ballast as metal prices moon. I looked at why the FTSE 100 could hit 10k this year last week.
Elsewhere, New Zealand’s Reserve Bank cut the policy rate by 50 basis points to 2.50%, more than the 25-basis-point cut expected, with policymakers citing a willingness to reduce the rate further to support the struggling NZ economy. The kiwi fell to its lowest against the USD since April on the decision.
German industrial production out this morning at -4.3% month-on-month and -3.9% YoY, far worse than the -1.0%/-0.9% expected. Along with the French troubles that was enough to push EURUSD to its weakest in over a month.
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