On September 8, prominent investment strategist Lyn Alden shared her tentative five-year outlook in the September 2024 edition of her newsletter, offering insights into various asset classes ranging from U.S. and international stocks to bonds, gold, and Bitcoin. Alden began by expressing a neutral-to-negative view on major U.S. stock indices, noting that they are starting from an expensive baseline. She highlighted that household investable assets are already heavily allocated into these indices, making further growth challenging. However, Alden pointed out that among smaller, more cyclical, or mid-sized U.S. stocks, there are still reasonably-priced options with better prospects going forward.
When it comes to international stocks, Alden conveyed a more optimistic view. She explained that the upcoming 2024 Federal Reserve interest rate cuts could provide an opportunity for international stocks to outperform U.S. stocks, a shift that hasn’t occurred in a while. Alden stressed that while there is no certainty that this will happen, her base case is that a meaningful asset rotation cycle is on the horizon. This is why Alden believes that it is crucial to have at least some exposure to international stocks within an overall portfolio.
Turning to developed market government bonds, Alden expressed a more cautious stance. She pointed out that U.S. Treasury notes currently yield about 3.7%, but with the money supply historically growing at a rate of around 7% per year, maintaining purchasing power with these bonds is a challenge. Additionally, she cited the anticipated $20 trillion in net Treasury debt expected to hit the market over the next decade as a key concern. While Alden acknowledged that the long end of the yield curve could be a useful trading tool, she cautioned against having passive long exposure to it.
However, Alden took a more favorable view of inflation-protected Treasury notes. Specifically, she noted that a five-year inflation-protected Treasury note currently pays about 1.7% above the Consumer Price Index (CPI). According to Alden, this makes it a reasonable option for the defensive portion of a portfolio. She also mentioned T-bills as another defensive asset, though she described them as not her favorite but certainly better than many other alternatives.
Gold also featured prominently in Alden’s outlook. She observed that the precious metal had seen a significant breakout in 2024, although she acknowledged it might be tactically overbought in the near term. Despite this, Alden emphasized that gold remains relatively under-owned by many metrics and should benefit from the U.S. rate cutting cycle. Based on this analysis, Alden maintained a bullish stance on gold for the five-year horizon.
Finally, Alden turned her attention to Bitcoin, which she described as being highly correlated with global liquidity. Alden stated that she expects this correlation to persist and expressed a very bullish outlook on Bitcoin over the next five years. However, she did caution that the asset’s volatility must be carefully accounted for when determining position sizes within a portfolio, given its unpredictable swings.
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