This Year's Big Winner Is Up 30,000%

Editor's note: Regular Empire Financial Daily readers will likely remember Alex Green, the chief investment strategist at The Oxford Club... For 16 years, Alex worked as an investment advisor, research analyst, and portfolio manager on Wall Street. Since leaving the Street, he now authors three of the most read investment newsletters in the industry. In […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Editor's note: Regular Empire Financial Daily readers will likely remember []Alex Green, the chief investment strategist at The Oxford Club... For 16 years, Alex worked as an investment advisor, research analyst, and portfolio manager on Wall Street. Since leaving the Street, he now authors three of the most read investment newsletters in the industry. In today's essay, Alex discusses what investors should do amid the recent tough market... --------------------------------------------------------------- This Year's Big Winner Is Up 30,000% By Alex Green --------------------------------------------------------------- [NOW AIRING]( Two Wall Street legends are issuing one URGENT warning. The breakthrough of a new technology this fall could change the entire narrative of the market. [Learn more here](. --------------------------------------------------------------- In the 23 years that I've been The Oxford Club's chief investment strategist, our Trading Portfolio has beaten the S&P 500 Index by 145%... (No small feat when nine out of 10 professional money managers fail to beat the index over periods of a decade or more.) However, our performance over the past year and a half has not been as strong, quite frankly. Let's look at the reasons why, starting with a bit of history... Stocks hit an all-time high in January of last year. Since then, they have given investors a rough ride, to put it mildly. The S&P 500 ended last year down more than 18%. Bonds – which usually provide ballast – also suffered. In fact, they had their worst year in recorded history. Stocks bottomed last October, then entered a bull market – defined as a 20% rise off the low – this spring. But the market went back into a sinking spell in the third quarter. And the slump has continued this month. Yet – as many analysts point out – the S&P 500 is still up around 13% this year. While true, that's deceiving... For starters, the S&P 500 is down about 9% from last year's high. And the overwhelming majority of stocks in the index are lower this year. In fact, 13% of them – more than one in 8 – recently hit a 52-week low. In other words, they're not just down. They're way down. This year's return is due to seven stocks – often referred to as "The Magnificent Seven" – Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA). These tech megacaps – with a combined market cap of more than $10 trillion – account for more than a quarter of the total value of the index. That's why the S&P Equal Weight Index – which holds all 500 companies in equal amounts – is up a paltry 1% year to date. The Dow Jones Industrial Average is also barely positive for the year. Meanwhile, the small-cap Russell 2000 Index is down more than 20% from last year's high. Real estate investment trusts are also negative. (The S&P REIT Index is down nearly 30% from last year's high.) And so are most foreign markets, especially when measured in the U.S. dollar, which has been uber-strong this year. Bonds are also getting killed. Even utilities – considered among the safest bets in the stock market – have shed nearly 20% this year, making them the worst-performing sector in the index. The only people who might have made decent money so far this year are traders who jump on whatever is hot... To newbies, this may sound like a great strategy, but it isn't. Like a dog that chases anything that goes whizzing by, it eventually ends with a sharp yelp... and a splat. For example, this year's hottest stock – AI leader Nvidia (NVDA) – has dropped more than 5% just since September 1. The real winners this year are folks who own money market mutual funds. The recent yield is more than 30,000% higher than in February 2022, the month before the Fed began raising short-term interest rates to combat inflation. (Many banks are still paying just 0.01% on cash deposits. Move that money immediately.) --------------------------------------------------------------- Recommended Link: ['Project E-92' is about to take the mainstream media by storm]( Right now, a secretive movement Whitney Tilson has codenamed "Project E-92" is afoot in Washington to launch the next big game-changing technology. If he's right, it's going to hit the mainstream radar around October 13. [Find out how to get your money there first and reap the rewards as this megatrend kicks off here](. --------------------------------------------------------------- Why has this year's bull market turned ugly? Analysts point to higher energy prices, the strong greenback (which makes American exports more expensive in foreign markets) and inflation (which is coming down but still too high). But the real culprit has been the relentless rise in bond yields. High interest rates make it more expensive for consumers, businesses and governments to borrow. They also provide competition for equities. The benchmark 10-year U.S. Treasury note yields almost 5%. In short, "TINA" – "There Is No Alternative" (to stocks) – is dead. Why have yields risen so sharply? Because – despite all the Fed's interest rate hikes – the U.S. economy refuses to cool off. Consumer spending was much stronger than expected in August. The Fed estimates that GDP grew at more than 3.5% in the third quarter. And there are 9.6 million job openings in this country for every American looking for a job. The Fed has taken interest rates from zero to nearly 5.5% over the last year and a half. But the intended effect – a slowing economy – has not occurred. That means interest rates are likely to stay high for longer. The market is adjusting to this reality. As a result of the slide, investor sentiment has – predictably – turned sharply negative. There is a second reason why some of our stock portfolios have had a difficult year... We use a trailing stop strategy. Trailing stops protect your profits during the good times and your principal during the bad times, making sure a small loss never turns into an unacceptable loss. However, there is a trade-off. In a volatile market, you can get whipsawed. For example, in May, I recommended Globalstar (GSAT) to my subscribers – based on heavy insider buying – at $1.05 a share. We stopped out five weeks later with a gain of just 4%. Today the stock – despite the rout in the market – is 30% higher. This limitation is why we don't use stops in our Oxford All-Star Portfolio, our Gone Fishin' Portfolio, or our Ten-Baggers of Tomorrow Portfolio in The Oxford Communiqué. The downside with those strategies? Without trailing stops, you can end up with less of your profit... or your principal. (Life is all about trade-offs.) Given the lousy tone of the market, what should investors do now? - Don't flee stocks. Remember that every market sell-off eventually morphs into a rally. And no one rings a bell at the bottom. - Recognize that equities aren't tumbling because the economy is too weak but because it's too strong – a positive indicator for corporate earnings this quarter and next. - Recognize that negative investor sentiment is a contrarian signal. History shows that investors are most euphoric near market tops and most pessimistic near market bottoms. - Make sure you diversify beyond common stocks. You should own real estate investment trusts, precious metals, high-grade bonds, high-yield bonds, and inflation-adjusted Treasurys (all with short maturities), and foreign equities as well. - Buy only best-of-breed companies. This is no time for flimsy firms with high levels of debt, mediocre earnings or declining market share. Stick with companies with strong cash flows, solid balance sheets, handsome returns on equity and enduring moats around their business. (Think patents, brand names and trademarks.) - Maintain your sell discipline. Whether that is trailing stops or something else, you need to cut your losses short and let your profits run. (Cutting your profits and letting your losses run doesn't work.) - Remember that the best investment returns don't go to the folks with the biggest brains. They go to the ones with the strongest stomachs. They look past the chaotic present and focus on the longer-term future. While this approach will not inoculate us against taking the occasional loss, it does give us unlimited upside potential with limited downside risk... That upside will become more apparent when the market turns around, as it always does eventually. If I had to guess when, I'd say when equity investors stop obsessing over Fed policy and bond yields and start focusing on high-quality franchises with solid fundamentals and durable competitive advantages. When they do, of course, we'll already be there. Just as we were with each downturn over the past 23 years. As Mark Twain pointed out... "History may not repeat itself. But it rhymes." Regards, Alex Green Editor's note: Alex and Empire Financial Research founder Whitney Tilson believe a rare event could completely rock the financial markets... in a unique new way that could create millionaires on just a single investment. As they say, the unveiling of a breakthrough technology that will redefine the U.S. economy in ways you can't even imagine could cause some of the best-known companies to crash or go bankrupt... while other companies could go on to rise 10,000%. [Get the full story here](. --------------------------------------------------------------- If someone forwarded you this e-mail and you would like to be added to the Empire Financial Daily e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2023 Empire Financial Research. All rights reserved. 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