The Fed Is Lost at Sea

Stocks down, yields up... The Fed is lost at sea... Be your own captain... The high cost of government debt... Misery remains on the table... Pricing in 'higher for longer'... Weighing the risks... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Stocks down, yields up... The Fed is lost at sea... Be your own captain... The high cost of government debt... Misery remains on the table... Pricing in 'higher for longer'... Weighing the risks... --------------------------------------------------------------- Mr. Market can't shake the jitters... Ahead of yesterday's Federal Reserve meeting, I (Corey McLaughlin) wrote that the "pause" of interest-rate hikes may happen, but the market has been jittery lately. Well, yesterday [the pause did happen]( and Mr. Market looks more uneasy... Today, all the major U.S. indexes were down for the third straight day... bond yields hit fresh decade-plus highs... the dollar was up again... and more and more weakness for stocks is beginning to show. Not only are the indexes trading below their 50-day moving averages, but today the small-cap Russell 2000 – which has closed down five days in a row – cracked below its longer-term, 200-day moving average. So did the equal-weighted version of the S&P 500. While concerning, it should be noted that both of these indexes breached this technical level twice earlier this year – first during the bank crisis in March and again in May around the debt-ceiling drama. They rebounded both times to keep the broad uptrend in place since last October. What gives? For one thing, the Fed is lost at sea... If any investors sailing the market ocean were seeking direction from Fed Captain Jerome Powell – "[navigating by the stars under cloudy skies]( remember – they were left aimlessly floating instead. At best, they might be enjoying a slight breeze at their back, but headwinds are in the area, too. As we reported yesterday, in its latest round of economic projections, the central bank painted a rosy picture for the economy ahead... But when Powell spoke in a press conference after those outlooks were published, he essentially threw his hands up again as if to say, "We don't know anything." Stocks, about even for the day until then, sold off as he spoke... The benchmark S&P 500 finished about 1% lower yesterday... and continued its downtrend today, closing roughly another 1.7% lower. And we were reminded again why the best idea is to be your own captain in the market, think for yourself, and see the market for what it is. Yesterday, Powell was asked about the prospect of a "soft landing," meaning inflation reaching the central bank's supposed 2% goal without a significant rise in unemployment. Powell chuckled and said he would not guarantee such a thing... Ultimately, this may be decided by factors that are outside our control. Powell was also asked about the recent rise in bond yields, which could possibly eat away at the attractiveness of stocks and other risk assets. The 10-year Treasury yield is now close to 4.5%... its highest level since 2007 before the financial crisis. Powell chalked up this behavior in yields not to rising inflation expectations, but perhaps a reacceleration of the economy and a recent increased supply of Treasurys. Now, thanks to the Treasury Department needing to issue about $100 billion of bonds this quarter alone to finance government spending, the former isn't stopping anytime soon. And an accelerating economy sounds suspiciously like inflation to us... A giant package of mixed messages... At the same time, Powell sounded like a guy who was nearly satisfied with the amount of work the Fed could do to fight inflation. The tack now for the USS Fed is to "proceed carefully," the captain said – most likely meaning one more rate hike in 2023 and that's it. And the central bank projects that it will start cutting rates by sometime next year, but inflation won't return to 2% until 2026. And touching on other factors, when asked about oil prices rising and now above $90 per barrel, Powell dismissed them as short-term moves. And on recent GDP growth expectations nearing 6%, he said the Fed will look at how that is a "threat" to reach 2% inflation but isn't sure about it right now. He didn't sound quite like his hero Paul Volcker and certainly wasn't vowing to crush inflation. Yet he wasn't flashing a green light for investors that higher rates are finished, and he reminded folks about the 1970s and early '80s. This comment caught my ear... If you don't restore price stability, inflation comes back, and you can have a long period where the economy is just very uncertain and it will affect growth [and] all kinds of things. It can be a miserable period to have inflation constantly coming back and the Fed coming in and having to tighten again and again. So, misery is still on the table, too. Great. I don't necessarily disagree. The pace of inflation could rebound, causing the Fed to raise interest rates more than the market expects... if not later this year, then maybe into next year. We have seen this dynamic in play for more than a year. Now, throw in [the possibility of a recession]( with it. Reading through what sounds mostly like noncommittal, mixed messaging, Powell was saying – and Fed members showed in their projections – that interest rates will likely stay above 5% for the foreseeable future. But they're worried enough about the economy right now that they don't want to push the cost of money much higher. Kick your rate cuts down the road... So, that's what he said, and then we see what the market is thinking about it... I've listened to market commentators over the past 24 hours, and many of them seem similarly confused with what the Fed's plans are right now. But if you look at the futures markets and bond yields, this week's market action may reflect growing expectations of a slightly higher-interest-rate environment for longer than previously thought. Compared with the expectations one month ago, fed-funds futures traders are now betting on the Fed's benchmark lending rate being about 50 basis points higher throughout next year. This same group of bond traders now thinks the earliest the Fed would cut rates is June. This trading activity also implies that these folks don't expect a reason to cut rates – like a recession, for example – until later next year. Could what we've been seeing in the stock market over the past two months be essentially a "pricing in" of the same idea, leading stocks to turn higher from here? Sure. But could things still get worse before they get better? Yes to that, too, like if unemployment should rise higher and sooner than expected. Remember, the Fed's track record is one of the worst we've ever seen in the history of recorded predictions... Spend more time thinking about your investing goals and how to achieve them instead in the current environment. Bond yields are now back at the levels they were before "quantitative easing." There is again a viable alternative to stocks, yet inflation remains a risk to the economy, along with plenty of other things. Weighing risks in real time... If you are looking for opportunities in the short term – as our Ten Stock Trader editor Greg Diamond covered today in a piece titled "[The Best-Case and Worst-Case Scenarios]( – Greg is watching several indicators before settling on an answer about the direction of this market. He told subscribers he's looking at whether a "top" in oil will form – suggesting less inflation pressure. He's also looking at whether bond yields keep going higher, and how various stocks and indexes perform over the next week. Based on his technical analysis, "the probabilities still favor the bullish setup"... but he's not counting out more downside ahead, either. So, he's not adding any new positions, but he's not cutting anything loose yet either, instead staying patient. He's not the only one managing risk... Today, our DailyWealth Trader editor Chris Igou outlined another potential bullish setup for his subscribers in the consumer staples sector, but he's not ready to pull the trigger on a trade yet. Chris' existing subscribers and Stansberry Alliance members can get the details [here](. Stansberry Research senior analyst Brett Eversole, in [yesterday's edition of True Wealth Systems "Review of Market Extremes,"]( also shared a look at a retailer whose shares he says have been beaten down too much as of late. He said history suggests they could rebound close to 30%. Stansberry Research senior analyst Bryan Beach also just yesterday recommended shares of a software company [to his readers in Stansberry Venture Value](. It's from one of his favorite sectors and trading cheap enough for him to buy today, with the long run in mind. As Bryan wrote, even this business's biggest critics on Wall Street think the stock has 50% or more upside in the next year. On the other hand, like I mentioned yesterday, some folks like our friend Joel Litman are more bearish right now. Joel, the founder of our corporate affiliate Altimetry, actually hasn't been this nervous about stocks since 2007. Importantly, though, Joel has a plan to deal with the risks he sees ahead. He's going to share all the details next Wednesday, September 27, in a free video event. If you sign up today, you'll get access to a free investing tool that Joel plans to talk more about next week. [Click here for more information](. --------------------------------------------------------------- Recommended Links: [This Signal Triggered in 2008 – Now It's Flashing AGAIN]( The analyst who called the 2008 and 2020 financial crashes says the market optimism today is a dangerous illusion. The same ironclad "law" of finance that predicted 2008 tells us the next two to three years will be dangerous and painful. But there's a "backdoor" strategy that could show you high-double-digit income and triple-digit gains right through this crisis (with extra benefits that will astound you). [Click here to learn more](. --------------------------------------------------------------- [The Top Five AI Stocks to Buy in 2023]( Investors are getting very rich in artificial-intelligence stocks right now. And according to 50-year Wall Street veteran Marc Chaikin, there are FIVE AI companies Wall Street is buying hand over fist that need to be on your radar immediately. [Click here for the names and tickers](. --------------------------------------------------------------- New 52-week highs (as of 9/20/23): CyberArk Software (CYBR), Enterprise Products Partners (EPD), Omega Healthcare Investors (OHI), and Roper Technologies (ROP). In today's mailbag, thoughts about [yesterday's Digest]( which focused on the latest message from the Federal Reserve and the situation many white- and blue-collar workers are facing today... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Your description of 'the fly-by-stars sailors led by Captain Jerome Powell' got me thinking – Powell is really like Captain Ahab obsessed with slaying Moby Dick (inflation) no matter the cost (economic ruin) because Moby Dick (inflation) once bit off Ahab's leg (transitory inflation still taunts him)." – Subscriber Steven I. "The Fed has a perfect record. They have been wrong almost all the time for 110 years. I have found after being in the market for 56 years investing is easy: All you have to do is listen to the talking heads on TV. When they are all happy sell, then wait for doom and gloom, the world is coming to an end, etc. Then buy. I think the world will be coming to an end within the next couple of weeks." – Subscriber Alan W. "Corey, While the Fed's 2024 changes 'seemed' hawkish today, they are as ephemeral as they were last month (and as changeable). Net? I seriously doubt Powell & Co. will raise rates again this year. Powell laid out so many excuses/headwinds that at least 'one' would not be a surprise. I expect stocks to rise and bond rates to fade somewhat, as Wall Street gets over today's TT (a type of tantrum)." – Stansberry Alliance member Bill B. All the best, Corey McLaughlin Baltimore, Maryland September 21, 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 1,182.7% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,007.1% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 876.6% Extreme Value Ferris wstETH Wrapped Staked Ethereum 02/21/20 604.3% Stansberry Innovations Report Wade WRB W.R. Berkley 03/16/12 581.8% Stansberry's Investment Advisory Porter NVO Novo Nordisk 12/05/19 575.2% Stansberry's Investment Advisory Gula BRK.B Berkshire Hathaway 04/01/09 550.4% Retirement Millionaire Doc HSY Hershey 12/07/07 512.6% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 395.6% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 326.4% Stansberry Innovations Report Engel 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 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 1,456.3% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,049.1% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,024.8% Crypto Capital Wade MATIC/USD Polygon 02/25/21 765.0% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 621.8% 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}. 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