The S&P 500 Priced In Gold Is Saying Something Important!

1.) MAG7 – The Magnificent 7’s (“MAG7”) recent underperformance has led many to call it the “BAG7” instead. That said, the data suggests that U.S. tech is now trading at a PEG below almost every other index. The PEG ratio (Price/Earnings to Growth) is a simple way to judge if a stock is cheap or expensive when you consider how fast the company is growing. Is that to say that Tech is now “cheap”…or are all the other indexes still “expensive”? Good question. In my view, it’s now reasonably priced.

2.) OIL – Oil is and will likely continue to be on everyone’s mind. Since the start of the Iran war at the end of February, WTI (West Texas Intermediate crude) spot price is up 68% to $113 while the Dec contract is up only 14% to $72. This tells you everything. The front month is real physical scarcity + panic + speculation, moving 10–15% on headlines, while the back months reflect calmer expectations of how this resolves. This is why the S&P is only down ~4%. It would also make sense for this war to start unwinding in April as Iran runs low on ballistic missiles. Meanwhile, consensus is screaming about a permanent, 1970s-style geopolitical rupture. But the commodity term structure I’m pointing out below is calling their bluff. That Dec contract is up a mere +12.5% from June of last year, a period when the market was completely asleep. This is not a “World War III” energy crisis. Again, the back of the oil futures curve is telling you the Strait of Hormuz will be cleared quickly. If you disagree, there are plenty of trades available. The on-the-ground reality is that over 50% of the blocked oil has already found alternate routes. Traffic is slowly opening in the Strait through the Oman coastline (~1.6 MMBpd starting this week), Saudi pipelines are maxed out (7 MMBpd), UAE pipelines are flowing (~1.5 MMBpd), and Iran is shipping its own oil and tolling additional oil (~2 MMBpd). While press headlines scream “$2MM toll!”, that is a $1 per barrel premium for a VLCC (Very Large Crude Carrier). And those deals become free if the IRGC falls. Oh, and don’t forget that the OPEC+ eight members agreed to raise production quotas by 206,000 bpd for May.

3.) GOLD – I’m not going to discuss gold and it's current price, but assets “priced” in gold. All of us naturally think of things priced in the currency we use. In the US, that's dollars. But if the dollar itself is moving around (DXY can be volatile at times), then measuring everything in dollars can distort what’s really happening. You think something is going up, but maybe the unit you’re measuring it in is just going down. Today, when you step back and look at stocks in terms of gold, you’re seeing something very different than what shows up on CNBC every day. The S&P 500 priced in gold just hit its lowest level since 2013. So let’s think about this for a moment. While everyone is arguing about whether stocks are up or down in dollar terms, the reality is they’ve been losing ground in real money terms for more than a decade. And now we’re at a level that matters. Either this is a massive breakdown that confirms a long-term top in stocks relative to gold, or it’s a failed move that sets up the kind of squeeze higher most people aren’t positioned for. If stocks can hold near here and turn higher relative to gold, that tells you everything you need to know. Not about the economy. Not about the Fed. About reality. It tells you risk appetite is alive and well. It tells you capital is still flowing into equities. It tells you the people betting on the end of the world are, once again, on the wrong side of the trade.