The hunt for a hedge is on.
With the Federal Reserve keeping its benchmark interest rate near zero on Thursday and more fiscal stimulus on the horizon as a final presidential election outcome draws near, there’s a lot for investors to consider when buying into certain asset classes, one trader said.
“You still have the S&P 500 trading under recent highs. The 10-year yield, more or less, has been sideways,” JC O’Hara, chief market technician at MKM Partners, told CNBC’s “Trading Nation” on Thursday.
“I’m actually looking at another asset class that I think will work tremendously well within this current environment, and that’s bitcoin,” he said. “What I like about bitcoin is it’s actually breaking out.”
Cryptocurrencies tend to act well going into and coming out of elections on the whole, but bitcoin’s technicals are particularly strong this time around, O’Hara said.
“When we looked at a chart of bitcoin, we could see a very strong technical setup here that we believe is setting up for further upside,” he said.
“It’s already breaking above the 2019 highs and from a technical perspective, there’s really not resistance until we have to go all the way back to December 2017,” O’Hara said. “So, in order to get to that level, we’re seeing another 20% higher for bitcoin. So, I think that’s the play here in the weeks to come.”
Quint Tatro, chief investment officer of Joule Financial, said his post-Fed trades were all about “gold, gold and gold.”
“There’s no question that gold is ripe for further upside here,” Tatro said in the same “Trading Nation” interview. “Ultimately, this is the area you want to be in to further capture that upside.”
Gold’s recent rally may have just as much to do with the market expecting the Fed to remain accommodative even if inflation reaches its target as it does with investors hedging around the election results, Tatro added.
The “easiest way to play [gold] for investors at home” is via the SPDR Gold Shares ETF (GLD) or mining stocks such as Agnico Eagle Mines or Barrick Gold, he said.
“These are great plays and, again, I think that there’s further upside to play off of this inflation trade,” he said.
Tatro did, however, see advantages to O’Hara’s bitcoin call.
“I think if this theme works based on what we’re talking about, gold will do exceptionally well and then the momentum horse will be bitcoin, there’s no question about it,” said Tatro, who owns some bitcoin in a Coinbase account.
The biggest risk for investors when it comes to the bitcoin trade is “liquidity,” the CIO said.
“I can’t buy it for clients. I can’t yet justify that going into managed accounts or retirement portfolios,” he said. “I mean, it’s massively liquid. I’m not saying that there’s no liquidity. But it’s one of those asset classes where you wake up and the next day it could be down 20 or 30% and I just can’t accept that risk for clients here.”
Gold reached 1½ month highs on Thursday as the dollar weakened. Bitcoin prices climbed nearly 8%, according to CoinMetrics.
Disclosure: Joule Financial and Tatro own shares of Agnico Eagle Mines. Tatro personally owns bitcoin.