Beware a Walk Over Coals

Walmart's recession-proof business... Discerning spenders are more frugal... A garden-variety correction or a walk over coals?... All we can do is weigh risk... Holy bond yields... Things are happening with the yield curve again... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Walmart's recession-proof business... Discerning spenders are more frugal... A garden-variety correction or a walk over coals?... All we can do is weigh risk... Holy bond yields... Things are happening with the yield curve again... --------------------------------------------------------------- Picking up where we left off yesterday on U.S. retail... This morning, America's largest retailer – Walmart (WMT) – reported its latest quarterly financials. They told a similar story to what we described yesterday... which was "resignation" on the part of U.S. consumers. According to the folks leading the largest U.S. retailers, customers are increasingly spending on what they need more than big-ticket items that they might want to buy instead... And this shift is significant, considering about 70% of the U.S. economy is tied to consumer spending. Walmart beat Wall Street consensus expectations for sales and profits for the quarter. And the company actually increased its full-year net sales outlook from 3.5% to between 4% and 4.5%. In short, the company showed why it is "recession proof," as [we have shared here before]( and we're not even in an official recession. (Though that could still be ahead... more on that momentarily.) More people used the company's online offerings last quarter. Americans also keep buying food at Walmart, which is the country's largest grocer with 25% of market share. Yet at the same time, various company leaders shared insight that suggests a "choiceful and discerning" customer overall, as Walmart's Chief Financial Officer John Rainey said in an interview today. That's a better description than 'resilient,' but it doesn't quite cover everything... Walmart's U.S. CEO John Furner said on an earnings call with Wall Street analysts that its limited-time "Rollback" deals have been very popular... sales of private-label Walmart groceries rose 9% year over year... and general-merchandise sales are down year over year. Maybe most telling, Rainey said on CNBC that the company will monitor the amount of merchandise it orders moving ahead, and he struck a cautious tone overall. He said... While inflation is moderated and employment levels have been steady, credit markets have tightened. Energy prices are higher and some customers face additional expense from the resumption of student loan payments in October. As such, we continue to be appropriately measured in our outlook. If this sounds conservative with a dose of recessionary flavor to you, I (Corey McLaughlin) agree. And as I will explain today, this conversation – and perhaps growing expectations for more of the same ahead – may be what we're seeing reflected in recent market action. Is this a 'garden variety' correction, or something more?... After a third straight down day today, the S&P 500 Index is off more than 4% since its most recent closing high on July 31... And after recent trading, it has been below its 50-day moving average for three straight days for the first time since the banking crisis in March. The U.S. benchmark and the other major indexes remain in a longer-term uptrend since last October. But if this recent turn continues, the S&P 500 would have another 6% or so to fall before meeting its current 200-day moving average, a technical measure of a long-term trend. Notably, as we've mentioned lately, the U.S. dollar continues to strengthen relative to other major global currencies. The U.S. Dollar Index ("DXY") is up nearly 4% since a July 18 low. This has been a major headwind for stocks over the past few years. Maybe stocks will start turning around tomorrow or next week. I can't say for sure that they will or will not. All we can do is weigh risk... That's what our Ten Stock Trader editor Greg Diamond [told his subscribers today]( when he suggested closing out a pair of bullish positions for gains of roughly 20% and 5%... The market is going to do what it's going to do... When I see a bullish setup fail, it makes me cautious. So we take off some risk and focus on what's next... Some folks may not like doing this, but managing risk is what separates the winners from losers over the long term... When I consider what has happened already and what could come next, I see a potential 10% hit before the S&P 500 would meet its longer-term average, which sometimes ends up aligning with a technical "support" level. Back in the old days before the pandemic, during what was then a record-long bull market, a 10% pullback was considered a "garden variety" correction. No big deal. It could end up being the same today... But given the current state of affairs in the U.S. – still-high inflation, continued monetary-policy uncertainty, perhaps more recession talk (and reality) ahead, lingering shell-shock from market performance in 2022, and polarized national politics getting back to the forefront – it might feel more like a walk on coals rather than a stroll in a garden. Take note... Maybe the major U.S. indexes will stop falling soon. Next week's central banker confab in Jackson Hole, Wyoming might have something to do with that. Federal Reserve Chair Jerome Powell will take the stage again and could answer some questions about future policy plans... and could ease some fears. But there could be some more downside ahead, too. Hints of additional central-bank rate hikes are a particular risk, given that gross domestic product ("GDP") for the quarter is projected to rise nearly 6% annualized, reported unemployment is still low, and the Fed's preferred inflation measure remains above 4%. That's certainly not a picture of helping ease inflation over the long run. Maybe this is why, for the first time in this rate-hiking cycle, I've seen bond traders starting to place small bets on a near 6% fed-funds rate by November. That is according to the CME Group's FedWatch Tool. Holy bond yields!... The 10-year U.S. Treasury yield has been on the move lately, hitting more than 4.3% today, a level it last reached back in October 2022 (and before that, 2008!). The former is notable because it's when the major U.S. stock indexes put in a bottom. The 10-year yield revisiting this level could be a signal that inflation and interest-rate expectations, which also bottomed back in October, are on the rise again in the market. When these factors are in play, the 10-year Treasury's yield must rise to compete with higher rates on newly issued debt (driving down the prices of existing Treasury bonds). One indicator also suggests the bond market's recent behavior could also mean that a recession may be on the way – even if Powell and Treasury Secretary Janet Yellen insist it's definitely not coming... or at least that more investors are preparing for one. I keep going back to the most relevant history we have... In the past few years, we've experienced high inflation and fast-rising interest rates. Our parallel is back in the late 1970s and early 1980s, back when the yield curve was last as inverted for as long as it has been now because of persistently high inflation. This period was when short-term yields, like the 2-year or 3-month or effective federal-funds rate, were higher than the 10-year or 30-year. As we've mentioned before, only after the yield curve began to "get back to normal" in these instances (and the others since) did a recession follow – and stocks hit a related bottom. [Back in June]( we shared this chart via Stansberry NewsWire editor Kevin Sanford... Perhaps not coincidentally, stocks dropped around 13% during the "inflationary periods" where the yield curve was as inverted for as long as today in both 1980 and in 1981. And these declines happened amid what were considered "official" recessions. In other words, a 10% drop in stocks would be completely "normal" in today's circumstances. Whether that happens within the next few weeks or months from now, we can't be sure. But here's what we can say... Today, we might be seeing the very early signs of yields starting to revert – again... We saw some of this back in March during the bank crisis. But after the Fed stepped in with emergency rescue measures, the story returned to the status quo. But rather quietly over the past few months, and more noticeably lately as the U.S. stock indexes have weakened, Treasury yields have started to "revert" again... Take a look... While the 10-year yield was up today, the 2-year yield was actually down. It's a similar story with the 10-year/3-month Treasury spread, which some people like to follow, too, for the same reasons. Again, you might take this behavior as good news and a sign of things getting back to normal. It will be both eventually... But it also means the erstwhile recession could finally show its face later this year or early next year. It can be a tricky situation to navigate... In other words, don't get complacent. If you're thinking about taking profits on a trade, now might be a good time. But remember your timeline and goals, too... And remember that cash will lose value in this inflationary world. Short-term yields, like a 3-month Treasury bill still offering nearly 5.5% annualized, may be appealing to you to grow cash on hand. And over the long run, owning shares of high-quality stocks that can keep rewarding shareholders is always better than not. Checking In on the 'Magnificent Seven' The "Magnificent Seven" have been on a tear this year... Is it a sign of more good things to come in the market? Or should we be concerned that tougher times are ahead for U.S. stocks? Matt McCall has thoughts... [Click here]( to watch this video right now. For more free video content, [subscribe to our Stansberry Research YouTube channel](... and don't forget to follow us on [Facebook]( [Instagram]( [LinkedIn]( and [X (formerly known as Twitter)](. New 52-week highs (as of 8/16/23): None. In today's mailbag, feedback on [yesterday's Digest]( in which we questioned the "resilience" of the American consumer... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Good day, Corey. Excellent Digest (as per usual) and could not agree more with your thoughts on the word 'resilience' in reference to consumers. Hearing economists, politicians, et al say 'consumers are resilient' along with phrases such as 'flush with cash'... 'excess savings'... considering the reality of most folks, seems akin to saying an unprofitable debt-ridden zombie company has a 'great balance sheet'. This resilience may be true for the top few percent whose wealth has grown most, but the majority of people have a different story..." – Subscriber Jeremy W. Corey McLaughlin comment: Thanks for the note, Jeremy. I'm preaching to the choir here with you... But there sure seems to be a large discrepancy if so many people shopping at major U.S. retailers are reportedly "flush with cash" and have "excess savings" – yet Americans are racking up record amounts of credit-card debt and avoiding big-ticket purchases while still spending on the necessities. I think your point about how "this resilience may be true for the top few percent whose wealth has grown most, but the majority of people have a different story" is spot on. This has been true for a long time, but the more income a person or household makes, the more likely they are to have savings... A recent Bankrate survey of 1,000 Americans, for example, showed that 75% of those making $100,000 or more per year said they had enough savings to cover three months of expenses or more... and 50% felt they had enough to cover six months or more. Far fewer of those making under $50,000 – just 1 in 4 people – said they had enough cash to cover three months of expenses, and only 16% said they felt they could cover six months or more of expenses with their current savings. Now, there are a lot of ways we could go with this conversation from here... But for now, I'll just say as it relates to an investment portfolio, this scenario is less troublesome for high-quality companies that can sell enough products or services to keep margins high in any environment. These are "recession proof" businesses that are likely to weather downturns better than others... like Walmart, which we mentioned above. All the best, Corey McLaughlin Baltimore, Maryland August 17, 2023 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,182.0% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,005.9% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 895.5% Extreme Value Ferris wstETH Wrapped Staked Ethereum 02/21/20 703.9% Stansberry Innovations Report Wade WRB W.R. Berkley 03/16/12 553.3% Stansberry's Investment Advisory Porter HSY Hershey 12/07/07 529.8% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 527.9% Retirement Millionaire Doc AFG American Financial 10/12/12 392.2% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 312.7% Stansberry Innovations Report Engel FSMEX Fidelity Sel Med 09/03/08 303.4% Retirement Millionaire Doc 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 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Stansberry Innovations Report Engel/Wade 1 Extreme Value Ferris --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 1,602.5% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,052.2% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,026.4% Crypto Capital Wade MATIC/USD Polygon 02/25/21 787.7% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 664.8% 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 Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc 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 ^ 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. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or e-mail info@stansberryresearch.com. Please note: The law prohibits us from giving personalized investment advice. © 2023 Stansberry Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Stansberry Research, 1125 N Charles St, Baltimore, MD 21201 or [www.stansberryresearch.com](. Any brokers mentioned constitute a partial list of available brokers and is for your information only. Stansberry Research does not recommend or endorse any brokers, dealers, or investment advisors. Stansberry Research forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees of Stansberry Research (and affiliated companies) must wait 24 hours after an investment recommendation is published online – or 72 hours after a direct mail publication is sent – before acting on that recommendation. This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.