It Smells Like 'Pre-Recession' Funk

A familiar story... A messy picture for stocks... The second recession indicator to watch... The bad news and the good news... Why individual investors have an advantage... Our Stansberry Conference is coming up fast... Stock prices down, bonds down, dollar up... We've seen this story before... These three things happened in concert throughout much of […] [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] A familiar story... A messy picture for stocks... The second recession indicator to watch... The bad news and the good news... Why individual investors have an advantage... Our Stansberry Conference is coming up fast... --------------------------------------------------------------- Stock prices down, bonds down, dollar up... We've seen this story before... These three things happened in concert throughout much of 2022... a little bit near the start of this year during the banking crisis... and for a more prolonged period over the past two months. It's bearish behavior, and I (Corey McLaughlin) have been tracking it here in the Digest. We've noted the possible downside ahead multiple times. More and more concerning indicators about the state of U.S. consumers and the jobs market have begun to emerge. All the while, the Federal Reserve continues to leave more interest-rate hikes on the table to bring down the pace of inflation. Back [in our August 17 edition]( for example, we wrote about the S&P 500 Index – which had crossed below its short-term 50-day moving average two days earlier – and detailed the possible downside ahead should selling continue. We wrote... 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. These trends have continued. The S&P 500 is down another 4% from its August 17 close. Today, it's barely above its 200-day moving average, the simple technical measure of a long-term trend that has been on the rise since midsummer... Meanwhile, Treasury yields, as we talked about yesterday, have climbed to 2007 levels. And the dollar – which has had a negative correlation with stocks for the past two-plus years – has kept chugging higher, up almost another 4%. Potential Fed policy has played a role. So has weakness in other major global currencies in Europe and Japan. While the S&P 500 remains above its long-term trend – just barely, as of today's 1.5% sell-off – the small-cap Russell 2000 Index and Dow Jones Industrial Average are below theirs. So is the equal-weight S&P 500, which is down 10% since its most recent high in July. Notably, though, the tech-heavy Nasdaq Composite Index is still well above its 200-day moving average. You can take this outlier to mean either that tech stocks have room to fall like the others already have... or that they are simply the strongest performers of the broad market. Add it all up, and the result is messy... As [I wrote yesterday]( it sure appears that more and more investors are preparing for some kind of economic slowdown over the next six to 12 months. The size and scope can and will be debated, but two important indicators we're watching suggest that "pre-recession" history may be in the early stages of repeating itself. It looks and smells like that familiar funk. Notably, as we shared yesterday, the yield curve has been "reverting" toward normal over the past few months. As we've said multiple times, relevant high-inflation history from when this happened in the 1970s and '80s is associated with stocks selling off around 13%. That's not a prediction or a guarantee that it will happen again, but it's something to think about. Today, here is the big kahuna to watch from this point forward: the unemployment rate. It's simple and broad, yes, but people will pay attention to it. We [explained this more in the September 5 edition]( but just know that these two things have historically happened during the start of what ultimately is dubbed an "official" recession. Look at what's happening right now. On the jobs front, the unemployment rate rose to 3.8% in August. The September numbers come out on Friday morning, and we'll be watching them because, as we wrote about a month ago, in a recession... The unemployment rate will rise over a sustained period, specifically to an average of 50 basis points (0.5 percentage points) higher than the low of the cycle for three straight months. We also introduced what economists call the Sahm Rule... It's named for Claudia Sahm, a former Fed economist and not coincidentally a member of the National Bureau of Economic Research ("NBER"), the body that makes recession calls that go in the history books. Using numbers from this cycle, an unemployment rate at or above 3.9% for three straight months would qualify, since the recent unemployment low for April checked in at 3.4%. It's almost there now. In August, the rate climbed to 3.8%. As we wrote last month... That's not at 3.9% yet, but it's pretty darn close. And if the jobs market continues to weaken as it did last month, it shouldn't be long before the U.S. government is reporting a 3.9% unemployment rate. Once we've had three straight months of that, or higher, you'll hear a lot more people saying a contraction is happening – except in D.C. That last quip referred to the idea that a recession still might never be made "official" by the folks in the government, if GDP stays strong. But that doesn't mean things aren't happening to slow the economy, hurt consumers, and influence your portfolio. To that point, if you wait around for the monolithic group of shot-callers at the NBER to make things official, your investments will have already faced the effects, like they have over the past two months. So, if you believe any of what I'm saying... what to do? Here's the bad news and the good news... First off, it does look like the economy might be headed toward a slowdown, with more pain and other consequences ahead... The good news is, even if you don't believe this to be true, you're now ahead of 95% or more of individual investors in the markets today. That's because, having read this Digest, you have at least considered this possibility. As always, you want to prepare for a range of possible outcomes. That begins by knowing your timeline and your investing goals first. Are you looking to build wealth? Or do you have what you need and are looking to not lose anything you may need for retirement over the next few years? These are important questions to ask all the time. Once that is squared away, you can think about what investments fit your goals and risk tolerance. For instance, our friend Joel Litman, founder of our corporate affiliate Altimetry, is very concerned for U.S. stocks in general over the next few years... And he sees risks ahead for the economy and debt markets in particular. So he has an alternative strategy he's recommending to avoid the damage in stocks... and take advantage of likely buying opportunities ahead in the bond market that could deliver double-digit yields and triple-digit capital gains. [Learn more in Joel's must-see presentation here](. My friend Dan Ferris is also cautious about stocks today, given generally high valuations. So, [in his most recent issue of The Ferris Report]( Dan looked at everything he sees going on in the economy today, bond yields and interest rates included. Based on those factors, he recommended one exchange-traded fund that he says is the best way to prepare for a crash while taking on the least possible risk and earning the highest possible yield. In fact, he called this investment his "No. 1 no-brainer pick right now." Dan wrote... We've found a unique investment that pays the safest 5%-plus yield on the planet right now. And if we're right about the direction of the economy, that dividend could rise even further over the next year. In short, we've got a way for you to profit from uncertainty. If you are willing to take on more risk, now actually could be setting up as a great buying opportunity for certain stocks, too. As I've suggested, market behavior right now may reflect growing anticipation of a recession. But remember, every other person (or machine) controlling money in the market has their own timeline, too. Some may be more short-term oriented. Institutional firms might want to limit losses to hit their required benchmark returns each quarter – regardless of what approach would make them more money. As an individual investor, you're not beholden to anyone but yourself... That's freeing. The next big bust ahead could be a great opportunity in stocks, should you have cash on hand ready to put to work. And some of our editors and analysts are gearing up... Just today, Stansberry Research senior analyst Brett Eversole detailed why he believes small-cap stocks are set up for massive gains over the next six to 12 months. [Read his take here](. When I did so this morning, I was reminded of something fellow Stansberry Research senior analyst Bryan Beach shared earlier this year – that small-caps have led stocks out of every bear market in the past 90 years... It also brought to mind something our friend and Chaikin Analytics founder Marc Chaikin has pointed out before – every bear market since 1955 hasn't ended until the Fed has decided to cut interest rates. The central bank sounds like it's about ready to pause... And in the event of a recession or significant jump in unemployment, it's likely to lower interest rates. I heard Marc share that nugget [last October]( at our annual Stansberry Research Conference. Just thinking about that, along with what's going on in the markets today – the risks but also the potential rewards – gets me excited for our next conference that kicks off in less than two weeks in Las Vegas. The event will take place October 16 to 18 at the Encore at Wynn. We've got tons of great speakers lined up, including your favorite Stansberry Research editors and analysts like Dr. David "Doc" Eifrig, Dan Ferris, Eric Wade, Greg Diamond, and Brett Eversole... and invited guests like Morgan Housel, Danielle DiMartino Booth, Josh Brown, Ben Mezrich, and Lance Armstrong (yes, that Lance Armstrong – the former cyclist who now has investing interests). Stansberry Research founder Porter Stansberry will also be there live on stage, too. So will more familiar faces like Meb Faber, Rick Rule, and Empire Financial Research founder Whitney Tilson. All in all, attendees will hear some of the sharpest market insight and analysis you can find anywhere – plus recommended stocks or other trades from our team and even some of our guests. In-person tickets are sold out, but you can catch everything via our livestream, too. I expect to hear a lot more ideas about how to navigate today's market environment, thoughts on whether a recession is ahead or not, or if it even matters, and various strategies for managing your own portfolio. I plan to share highlights in the Digest. But if you want to hear everything for yourself and aren't going to make it in person, your best bet is through our livestream. You can hear all the same speakers from Vegas in real time, catch all of the information and insight from the comfort of your own home, and have post-event access to on-demand video replays and transcripts of all the presentations. [Click here for all the details and grab livestream access today](. The Big Reset for Gold Is Coming "I think when rates are going to peak next quarter, and we got an election year next year, and when rates start falling, gold will be $2,300," says Frank Holmes, CEO and chief investment officer for U.S. Global Investors... [Click here]( to listen to this episode of The Daniela Cambone Show 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, the platform formerly known as Twitter](. --------------------------------------------------------------- Recommended Links: ['Dump AI for This Double-Digit Strategy' (Not Crypto or Stocks)]( If you're holding AI stocks – pay attention. There could be a far better, lower-risk way to make money in the markets right now. It's a reliable, lucrative strategy that can deliver double-digit income PLUS huge capital gains OUTSIDE of stocks, even during a recession. It has nothing to do with short-selling... options... gold... crypto... or anything you've likely considered. Forensic accountant Joel Litman says it could be – by far – the No. 1 strategy of the next three years. [Full details here](. --------------------------------------------------------------- [CEO of America's Biggest Bank Issues Stern Warning]( The CEO of America's biggest bank says, "I'm not sure if the world is prepared" for what he believes is coming next... while his firm is now telling clients to prepare for a worst-case scenario in ONE critical sector of the markets. [Full details and steps to take here](. --------------------------------------------------------------- New 52-week highs (as of 10/2/23): Costco Wholesale (COST) and Structure Therapeutics (GPCR). In today's mailbag, thoughts on Federal Reserve policy and the timing of a recession... and another thought on theft at retail stores... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "I've heard much talk about the Fed and the 'last' rate hike [in] November. I've also seen historically after the last rate hike it takes about 11 months for a recession to hit which quickly looking at the calendar would be October 2024. That takes us to right before the election. Makes me wonder if the Fed is not supposed to be political why would they 'pause' after this recent meeting and basically forecast a hike in November knowing historically recession sets in 11 months after their last hike? Seems fishy to me... "Joel's presentation was an eye-opener and while I find it's a great opportunity to make some great gains it makes me wonder which industry will be named 'essential' and available for more of our tax dollars for a government bailout, which gave me a small chuckle should I pick a bond of one of these companies I'll be basically paying myself to make my money back in a way." – Subscriber James S. "Hi Corey, I live in a 'safe', second-tier suburb in the Twin Cities of Minnesota. While no retail stores are closing here due to theft, I was surprised by what two employees of my local Walgreens store told me about what is happening there. The employees said that theft is now routine, and Walgreens management has instructed them to take no action. People regularly walk out the door with unpaid items and the police are not even notified. It is pretty obvious that the thieves have figured out that there is a 'pay at will' policy in effect, and the situation can only get worse from here." – Subscriber Rick B. All the best, Corey McLaughlin Baltimore, Maryland October 3, 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 1,184.7% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,010.4% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 861.9% Extreme Value Ferris wstETH Wrapped Staked Ethereum 02/21/20 604.3% Stansberry Innovations Report Wade WRB W.R. Berkley 03/16/12 561.9% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 517.2% Retirement Millionaire Doc HSY Hershey 12/07/07 482.2% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 383.9% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 326.5% Stansberry Innovations Report Engel ALS-T Altius Minerals 02/16/09 310.9% 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 4 Stansberry's Investment Advisory Porter 2 Extreme Value Ferris 2 Retirement Millionaire Doc 2 Stansberry Innovations Report Engel/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 wstETH Wrapped Staked Ethereum 12/07/18 1,456.3% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,044.8% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,026.6% Crypto Capital Wade MATIC/USD Polygon 02/25/21 768.0% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 637.5% 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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