They Were Hanging On Every Word

The Federal Reserve makes another move... What comes next... The bull and bear cases... Greg Diamond: 'Stocks are pricing in peak inflation'... Updating the 'bottom is (probably) in' checklist... Watch the U.S. dollar closely... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] The Federal Reserve makes another move... What comes next... The bull and bear cases... Greg Diamond: 'Stocks are pricing in peak inflation'... Updating the 'bottom is (probably) in' checklist... Watch the U.S. dollar closely... --------------------------------------------------------------- Wall Street was hanging on Jerome Powell's every word… At 2 p.m. Eastern time today, the Federal Reserve posted its latest policy statement on its website for anyone to see – from day traders to hedge-fund managers to algorithmic-trading computers. The Fed's press release appeared to indicate the central bank is ready to slow down interest-rate hikes and weigh the effects of previous raises on the economy. Stocks popped immediately by about 1%. The Fed said it was raising its benchmark interest rates by another 75 basis points, or 0.75 percentage points, to a range close to 4%. All that was expected. Then, about 30 minutes later, Fed Chair Jerome Powell had a press conference to talk about the decision... And as he spoke, the major U.S. stock indexes gyrated from positive to negative territory and back again on a few key statements from the head of the Fed, as an anxious Wall Street tried to gauge what he meant by what he was saying. I (Corey McLaughlin) kept track... Five minutes in, the benchmark S&P 500 Index dropped 1% after Powell said interest rates will have to go "higher than previously expected." I wasn't sure if I heard him correctly... Stocks rose back to positive territory over the next few minutes... Then he said the same thing, more directly. According to Powell, the Fed could indeed slow the pace of hikes as soon as its next meeting in December. However, he said, the latest inflation numbers "suggest to me that we might move to higher levels" than the roughly 4.5% rate the Fed had most recently projected (just last month) for the end of the year. The S&P 500 went negative on that comment... Then, a few minutes later, Powell said it's "very premature to think about pausing" rate hikes and "we have a ways to go." The S&P 500 dove by 2% on that comment. And he kept talking... and stocks rallied a bit more, though still negative for the day... Finally, someone asked a question that said the stock and bond markets had reacted positively to Powell's press conference. I'm not sure where this reporter was getting his information, but nonetheless, it caused the Fed chair to triple down on what he was saying... What I'm trying to do is make sure that our message is clear, which is that we think we have a ways to go. We have some ground to cover with interest rates before we get to that level of interest rates that is sufficiently restrictive. Putting that in [our] statement and identifying that as a goal is an important step, and it's meant to put that question as the important one going forward. I've also said that we think the level of rates that we estimated in September... the incoming data suggests that's going to be higher... and that's been the pattern... That will end when it ends, but there's no sense that inflation is coming down. I have a table of the last 12 months of 12-month readings and there's really no pattern. We're exactly where we were a year ago. I would also say it's premature to discuss pausing, and it's not something that we're thinking about. The last thing is, I would want people to understand our commitment to getting this done and not making the mistake of not doing enough or withdrawing our strong policy too soon. In other words, "I'm not saying we're going to pivot." Then it was over... and the market closed the day off roughly 2.5%. Wall Street was on edge heading into this afternoon... Even before the Fed's release, major U.S. stock indexes sold off for the third straight day... And firms and stakeholders were itchy to read the Fed's latest decision and hear from Powell. For instance, investment bank JPMorgan Chase sent around a forecast detailing six different possible outcomes from today's announcement, accounting for a range of rate hikes from 50-basis-points ("bps") to 100-basis-points and a "dovish" or "hawkish" press conference... The firm's best-case scenario for stocks was for as much as a 12% gain in the S&P 500 – if the Fed raised rates by 50 bps and Powell "pivoted" big-time. Its worst case was a 8% loss for stocks if the central bank went with a 1% hike and Powell talked tougher afterward. I turned on CNBC just for giggles around lunchtime, and I was not disappointed. The station was running a countdown clock like it was New Year's Eve and the Fed's latest policy announcement was the ball dropping in Times Square at midnight. In the end, what happened was in the range of most folks' (including JPMorgan's) most-likely scenarios... a 75-basis-point hike, the possibility floated of slower rate hikes at the Fed's next policy meeting in December, but also a "hawkish" tone from Powell. What comes next... In any case, say what you want about the Fed (and we certainly have)... But Powell and his band of bean counters have effectively slow-played this yearlong economic "tightening" in a way that hasn't thrown U.S. markets, at least, into a full-blown panic. In public, they've tried not to commit to one policy or another... And that has led to everything from hope for a "pivot" to dark speculation that the Fed will destroy the entire underpinning of the economy. Overall, though, it has been like a slow burn with rays of hope. This might be an unpopular opinion if you've prepared and were wary of stocks and bonds heading into this year, but the Fed's attempted "soft landing" has actually been just that so far. Of course, nobody wants their portfolio to be down 20% or 30%. And personally, I'd rather the Fed not have so much sway over the economy and markets. But so far, its plan to address the consequences of trillions dollars in stimulus (inflation) is working, albeit slowly. The bull case... Headline inflation has come down a little so far, and unemployment is still near record lows. News has been getting "less bad" lately... which, as our colleague Dr. Steve Sjuggerud has long said, is what you see when forward-looking stock markets turn around. As our Ten Stock Trader editor and technical analyst Greg Diamond [wrote this morning]( ahead of the Fed meeting, price action during last month's broad market low reflects this "less bad" sentiment. As Greg wrote to subscribers... If you go back to the October 13 low, the CPI [consumer price index] print came in higher... Stocks dropped sharply and rebounded. It was the price action and not the higher inflation number that mattered. And that's why I believe the low is in/confirmed in many stocks and indexes. Stocks are pricing in peak inflation. And today, we'll put that call to the test... So far, stocks trended down as Powell said he doesn't believe inflation is coming down, but the bond market didn't really move all that much. We will see what happens over the next few days as the market digests the messaging some more. The bear case... Of course, one could also make the argument we have not seen the worst of this rate-hiking/inflation cycle yet... Perhaps job losses and earnings hits are picking up, a recession still lies ahead, and unintended consequences could slam the market as well. And, remember, inflation is still at 40-year highs. And maybe a surprise or two are ahead. Maybe inflation hasn't peaked, or it won't slow down as quickly as many folks might think or hope it will... or the Fed will keep going higher with interest rates than the market currently expects (around 5% by early next year). Heading into today, though, Mr. Market has been indicating he thinks the worst might be over. And as I like to say, the stock market in general doesn't necessarily care what we think. It has a mind of its own, like the dog we walk every day. (Stansberry Research senior analyst Brett Eversole smartly describes the economy as the "man" and the stock market as his dog.) And if we're talking about stocks, what that dog is doing matters most... Looking at my 'bottom is (probably) in' checklist... I can't say it with certainty... But some of my indicators suggest we may have seen a market bottom. First, [market breadth]( of the S&P 500 Index has strengthened lately. In this case, when I say market breadth, I mean the number of individual stocks trading above their long-term trend versus below it. As of this morning, 36% of S&P 500 stocks were trading above their 200-day moving average, a simple technical measure of a long-term trend. This number has been above 20% – a key threshold for me – since October 21, and up from what increasingly looks like a low of under 10% in late September. If more individual stocks are trading above their long-term averages, there's a better chance the broad markets head that way, too... In any case, this also tells us stock-picking is back, baby (if it ever left). As [we wrote on Monday]( there are stocks trending higher right now, like Hershey (HSY). I'd add quality insurance companies to that list, too, which benefit from higher interest rates. Second, the dollar has gotten slightly weaker lately... I covered [the importance of the dollar]( to the markets last month... Generally speaking, the Fed's rising interest rates have strengthened the dollar relative to other major world currencies, while simultaneously pushing stocks down. Conversely, when the dollar has gotten relatively weaker, stocks have gone higher during bear market rallies. The U.S. Dollar Index ("DXY") measures the dollar against the euro, pound, Swiss franc, Japanese yen, Canadian dollar, and Swedish krona. Well, earlier this week, the U.S. Dollar Index broke below its 50-day moving average, a simple technical measure of a short-term trend. Today, it traded right near this average. But be careful believing the "strong dollar" story is finished, though. This index behaved the same way in May and August and for longer periods of time in January and February, so this could be more of the same short-term volatility we saw in those instances. And DXY is up 16% year to date. We'll keep watching... The first two items on my list are leaning closer to bullish than they were a few weeks ago, but not so much that I'm suggesting throwing all your money back into stocks today. Remember the advice we recently shared via Marc Chaikin, the founder of our corporate affiliate Chaikin Analytics. Marc likes to quote the late, great investor Martin Zweig, author of Winning on Wall Street... "Watch the Fed and listen to the market." That means listening to stocks – and we'll add the bond market, too. This 'recession indicator' is still going strong... The state of the yield curve and the $22 trillion Treasury market is [the third item]( on my "bottom is (probably) in" checklist. Specifically, I'm watching the yield spread between 10-year Treasurys and 2-year notes. As I wrote in the October 6 Digest... Since we're talking stock market bottoms here, we should note that Treasury yields are more of an economic indicator than a direct stock market indicator. But it's useful to look at them when thinking about the forward-looking stock market, too. In "normal" economic times, longer-term yields will be higher than shorter-term yields, or at least moving higher than short-term yields. You can make this comparison a lot of ways, but we like to use the 10-year/2-year spread, or 10-2, as a good benchmark. Typically, this spread is positive. But every once in a while, this relationship has gone negative... Short-term yields go higher than long-term, a sign that bond investors are more concerned about the distant future than the immediate one. After trending closer to positive territory last month (to negative 0.25%), the 10-2 spread has plummeted back down to negative 0.47% this week, a bearish sign. That's essentially the same level as the lows it has made a few times in the past few months... At the same time, the spread hasn't made new lows yet. That could still happen, but it's encouraging for now. The bigger point is this... The 10-2 yield spread flipping upside-down has preceded each of the last 11 recessions since 1955, with only one false positive... It has now been inverted for four straight months, its longest stretch since ahead of the financial crisis. That doesn't give me a warm and cozy feeling for 2023. Typically, stocks have peaked after yield-curve inversions, but that trend has been broken this year for the first time since 1973. That's the last time inflation was so high and occupied as much of the investing conversation as it does today. So I'm watching for a yield curve inversion "bottom" to match up with a stock market bottom. As I wrote last month... If stocks peaked before the yield curve inverted this year, it's reasonable to think that stocks will bottom before or around the same time the yield curve begins to revert to normal... This would mean longer-term yields would be headed higher than shorter-term yields again, indicating that both the short-term inflation and growth outlook have improved from what they have been lately. That sounds like it would be a remedy for a lot of fears about stock prices today, doesn't it? The yield curve hasn't made new lows, but it hasn't made much progress yet either. The final two items on my checklist – which are more confirmational – are inconclusive. Yet to be confirmed... On the technical side of things... this morning, the S&P 500 was trading just above its 50-day moving average, or short-term trend. But it's still about 7% from its 200-day moving average. So this is "half bullish." And the picture of fundamental earnings remains complicated, as it often is... The game of "moving targets" between Wall Street analysts and businesses rolls on. Outside of energy companies, corporate earnings are down on balance for the second straight quarter. But you're not hearing much about it, outside of the tech companies bombing in their reports last week. The S&P 500 is trading at an 18.7 price-to-earnings (P/E) multiple based on the previous 12 months of earnings. That is above the consensus 12-month forward-looking P/E ratio of 17, meaning stocks could be considered expensive based on future expectations. As I wrote [in the October 12 Digest](... In many market bottoms, the S&P 500 didn't stop falling until the index's 12-month forward P/E dropped to somewhere between 13 and 14. The S&P 500 bottomed with a P/E in that range at the end of the dot-com bust in 2002... and in the COVID-19 panic. Last month, the S&P 500's forward P/E was lower than today, at 16.3, so expectations are trending higher. But, at today's levels, if the S&P 500 dropped to a P/E of 13 or 14, its value would be between 2,650 and 2,900. That's about 25% to 30% lower than today's open. So this isn't a scenario you want to ignore entirely. But of the indicators I've mentioned, I'm putting the least weight in this one for short-term decisions. As Greg also likes to say, "Price comes first. Fundamentals come second." Here's the takeaway... It's possible the broad markets will continue to sell off through the end of this year and in 2023 when an earnings recession becomes clearer. But certain stocks are already trending up – and actually have been in the past few months. Nibbling may be warranted... All in all, these five indicators are telling me that the worst may yet be ahead for the economy... but perhaps the worst could be behind the stock market. I'm not making any declarations. Nor do I have a crystal ball or speak for any other Stansberry Research editor or analyst. But for the first time in a while, I'm comfortable saying that long-term investors might want to nibble on quality stocks trading below previous highs. And if the strength of the U.S. dollar does weaken further from here, that will change the story that has been 2022 in a big way. Assets denominated in dollars, like stocks, bonds, gold, and even bitcoin, would pick up tailwinds they haven't had in a year. I'd urge anyone interested in the hows and whys of the dollar story to read the latest issue of our Portfolio Solutions publications, published last night. Alliance members and existing Portfolio Solutions subscribers can find the issue [here](. Brett Eversole, who I mentioned earlier, provides a soup to nuts explanation of why the dollar has been a "wrecking ball" this year. He also explains why the dollar strengthens when the Fed raises interest rates, as it has been doing at a historically rapid pace in 2022... and why that can hurt stocks. Roughly 40% of revenues from companies within the S&P 500 Index comes from overseas. In the vital tech industry, that figure is more than 50%. This is a big reason why as of early last month, half of the companies that had reported third-quarter earnings said the strong dollar was hurting their businesses. It has become more expensive to do business, and the change has happened quickly. In the end, it comes back to where we started today... The Fed (unfortunately). This is why market watchers are paying close attention to what they say. As Brett wrote... The dollar is still clearly in an uptrend. Take a look... Until this changes, we must assume the dollar's rise will continue. But we do have an indication that we could be nearing a peak... The Fed plans to get interest rates to 4.5%. Whether they end up going higher or lower doesn't matter. Markets work on expectations. The expectation is 4.5%. And right now, two-year Treasury yields are 4.4%. The 10-year yield is 4%. The market has already priced in future Fed rate hikes, and it's possible the dollar has also. That means we could be near a peak. But again, we need to wait for the trend before we know for sure. A rapidly strengthening dollar – in addition to helping cause chaos overseas, like in the U.K. bond market recently – is also a major headwind for both U.S. and foreign stocks. But, as Brett wrote... once the dollar rolls over, all of the trends from this year will reverse. And a falling dollar could help signal an end to this bear market and send stocks higher. We're not there yet, but we're closer than we were at the start of the year. Sentiment Is Bearish, but That Could Be Bullish In another interview from our annual Stansberry Conference, Matt McCall sits down with Jared Dillian, editor of the popular Daily Dirtnap newsletter. Jared explains why the bearish sentiment dominating the market is actually a bullish signal to pay attention to... [Click here]( to watch or listen to this episode right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to [visit our Stansberry Investor platform]( anytime. --------------------------------------------------------------- Recommended Links: [Is This 'Tone Deaf'?]( Dr. David Eifrig: "YES, I'm celebrating. YES, in this dismal market... where folks are feeling a lot of pain and almost nothing has worked... except for ONE strategy that's almost perfectly suited for this exact kind of environment. It has just racked up an all-time record-breaking undefeated streak." [Full details here](. --------------------------------------------------------------- ['SELL THIS BELOVED AMERICAN STOCK IMMEDIATELY']( Wall Street titan Marc Chaikin and world-renowned forensic accountant Joel Litman just delivered an urgent crisis warning... and shared their No. 1 step to take with your money right now to protect yourself. Plus, Joel reveals his No. 1 stock you should SELL immediately. It's a beloved American company that he says is headed for disaster. [Click here for details and be ready to act quickly](. --------------------------------------------------------------- New 52-week highs (as of 11/1/22): Black Stone Minerals (BSM), Chevron (CVX), Gilead Sciences (GILD), W.W. Grainger (GWW), Cheniere Energy (LNG), Rollins (ROL), Texas Pacific Land (TPL), and ExxonMobil (XOM). In today's mailbag, feedback [on yesterday's Digest](... and our colleague Dr. David "Doc" Eifrig's beard, which he grew out in pursuit of a personal-best 140 straight wins in his Retirement Trader service... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "I admire Doc Eifrig's beard length and congratulate his bravery at letting it grow so long for us to see and admire. Good for you, Doc." – Paid-up subscriber Dennis J. "Per Corey's Digest... No, I can't really picture Doc with his gnarly beard raising the Stanley Cup over his head in the locker room celebration – maybe raising a rifle with a bayonet over his head in a Civil War battle re-enactment? "Just poking fun – love Doc (beard and all)." – Paid-up subscriber Ron S. Corey McLaughlin comment: This is the kind of sense of humor I was hoping to see in the feedback today. And as a reminder, for this week only and in celebration of his new record, we are offering our best deal ever to subscribe to Doc's Retirement Trader advisory. You can get access to Doc's No. 1 favorite trading strategy of all time – one which has returned 21% on average this year amid a bear market – for an all-time-low entry price and triple the typical satisfaction guarantee. In other words, there is no better time than right now to give it a try, so you can see if it's right for you and start generating income with Doc's recommendations. [Click here for more information](. All the best, Corey McLaughlin Baltimore, Maryland November 2, 2022 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst ADP Automatic Data 10/09/08 859.5% Extreme Value Ferris MSFT Microsoft 11/11/10 813.8% Retirement Millionaire Doc MSFT Microsoft 02/10/12 697.3% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 567.2% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 558.3% Stansberry Innovations Report Wade AFG American Financial 10/12/12 455.5% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 426.4% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 421.5% Retirement Millionaire Doc TPL Texas Pacific Land 11/05/20 374.0% Stansberry's Investment Advisory Gula ALS-T Altius Minerals 02/16/09 319.6% Extreme Value Ferris Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 5 Stansberry's Investment Advisory Porter/Gula 2 Extreme Value Ferris 2 Retirement Millionaire Doc 1 Stansberry Innovations Report Wade --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst ETH/USD Ethereum 12/07/18 1,289.7% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,149.6% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,097.3% Crypto Capital Wade MATIC/USD Polygon 02/25/21 857.0% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 484.1% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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