The Markets Are Looking Angry

Bonds keep going for a ride... Stocks are sitting on a key level... An indicator worth watching... The trigger for this Washington crisis... How it's all connected... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Bonds keep going for a ride... Stocks are sitting on a key level... An indicator worth watching... The trigger for this Washington crisis... How it's all connected... --------------------------------------------------------------- The bond market continues its wild ride... If you listen in on the crowd today, rising long-term bond yields in the U.S. and around the world have more and more investors on Wall Street wondering if or when another shoe is going to drop for stocks or the global economy in general... Here's market analyst Samantha LaDuc on the social media platform X (formerly Twitter) expressing the most prevailing worry among investors today. She describes what sounds like a breaking point... Markets are watching the 10-year melt away and they're starting to panic as 10s are the collateral for the whole financial system and there are now hundreds of $ billions of MTM losses suffered through the collateral stack... The "MTM" refers to unrealized mark-to-market losses. Regular readers might remember them as the featured antagonist in the bank crisis earlier this year. As our friend Joel Litman, founder of our corporate affiliate Altimetry, shared with you just this past weekend [in a Masters Series essay](... Basically, mark-to-market accounting requires companies to value their assets and liabilities at their current market price, rather than their historical cost. Stocks "mark up" and "mark down" constantly throughout the day. (This is what's referred to as "marking.") [Back in March]( enough folks with enough money in a few regional banks, most notably Silicon Valley Bank, got very concerned once they learned their bank was sitting on way more losses. The catalyst was the Federal Reserve's benchmark bank-lending interest rate going from near 0% to close to 5% in a little more than a year – that pushed the value of bonds held by banks way down. Some handled this scenario better than others. In any case, enough people got scared for their deposits and went on a few good old-fashioned bank runs, which rattled the market for a few days – until the Federal Reserve and Treasury Department stepped in on a Sunday night with emergency rescue operations. Things like this could happen again... Think of March's bank panic – and other possibly unimagined consequences – playing out more and more if rates go higher... and banks, institutions, businesses, and governments sit on possibly billions of additional unrealized losses. Let's not forget that the past 15 years featured ultra-low rates and low inflation. We're seeing the opposite now. This is one reason I (Corey McLaughlin) suspect the Fed has decided twice this year to "pause" interest-rate hikes... and why central bank Chair Jerome Powell has increasingly said the Fed is now weighing the risks of doing damage to the economy if it keeps raising rates to fight inflation. This scenario also aligns with Joel's concern about the broad markets over the next several years and why an upheaval in the debt (credit) market is likely ahead because of a higher-interest-rate environment that's only just beginning. Joel talked about this in his must-see presentation last week. Importantly, he also offered up a strategy for how you can take advantage of the fallout of what he thinks is to come – to make potential triple-digit capital gains and find double-digit yields. [Click here to learn more](. So, in short, we'll keep watching bond yields... Today, the two-year Treasury was down about four basis points to 5%... and the 10-year Treasury was slightly down to 4.71%. Yet the 30-year Treasury was up two basis points to 4.89%. This may actually be an encouraging sign and shows more ["reversion" of the yield curve]( meaning shorter-term yields on a path of being lower than longer-term ones again. This has typically happened before recessions. That's normal. This may be a sign of the bond market settling down and accepting new expectations for higher interest rates... and higher inflation... for longer. It may also reflect recognition of a worsening economy in the shorter term, as more and more signs predict a weakening job market. That would cause the Fed to cut its federal-funds rate, which short-term yields tend to track. Should longer-term rates keep going even higher, though, more pain could be ahead for the markets... and what this means for stocks remains to be seen. As our Director of Research Matt Weinschenk wrote just a few days ago [in the latest edition of our Portfolio Solutions products](... Stock markets don't like high interest rates, for two simple reasons... - Higher interest rates make the future earnings of companies less attractive. - The higher yield on a bond looks more enticing compared with the expected return on a stock, so money moves from stocks to bonds. For instance, the S&P 500's dividend yield is about 1.6%. The yield on a two-year Treasury note today is roughly three times higher. Treasurys offer an enticing "risk free" return if you're skeptical about the growth outlook for 2024 and beyond... or if you're tired of fretting about risks in stocks or other asset classes (and believe Uncle Sam will keep paying). We'll be watching other indicators as well... Some sentiment indicators are showing stocks are already at "oversold" levels, and the benchmark S&P 500 is sitting right above its 200-day moving average, the technical measure of a long-term trend. The index is also just above its previous highs around 4,200 in February, which could be a key "support" level. Should stocks break below, though, look out. Our friend Jeff Havenstein, an analyst on Dr. David "Doc" Eifrig's Retirement Millionaire team, wrote in yesterday's edition of [Doc's free Health & Wealth Bulletin e-letter]( about another indicator that has his attention: the advance/decline line. As Jeff explained... To recap, one of the simplest ways to know a market is healthy is to make sure more stocks are going up versus going down. This is what the advance/decline (A/D) line looks at. The A/D line takes the number of stocks that went up in a given day and subtracts the number of stocks that went down. If more went up during that day, the line goes up. If more went down, the line goes down. In a typical bull market, as stocks rise, the A/D line usually goes up, too. When the A/D line moves lower while the market continues to go up, it's time to worry. It means that gains in stocks are concentrated in only a few companies. Back in June, for example, the tech-heavy Nasdaq was surging on the backs of the so-called "Magnificent Seven," but the A/D line was heading lower. That foreshadowed the sell-off of the past few months. We're still seeing this behavior today. What's concerning to Jeff is that the biggest tech stocks – Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Nvidia (NVDA), Tesla (TSLA), and Meta Platforms (META) – also make up more than 25% of the S&P 500. And as Jeff said... Taking a look at the S&P 500 A/D line, it has been heading lower over the past few weeks. But the index is still only a bit off its highs... We'll have to see if this trend continues. It's definitely worth keeping an eye on... At the very least, it has me a little more cautious than normal on the outlook for the market. As we've also [explained this week]( tomorrow's jobs numbers reflecting September could play a significant role in the path of the markets in the near term. In August, the unemployment rate ticked higher to 3.8%. That's up from a cycle low of 3.4% in April. Any rate higher than last month could set off alarm bells that a recession is ahead or already underway. Meanwhile, the folks in D.C. aren't doing the market any favors... Down Interstate 95 from our Baltimore office, congressional behavior in Washington has hit new lows. And that's saying something. The House of Representatives is without a speaker during a term for the first time in 100 years. That means no business can get done at all. As I wrote last week, money is the trigger for this part of the D.C. circus... A small but powerful-enough slice of the Republican party has been stumping for deep budget cuts. That put the prospect of a government shutdown on the table last week and led to now-former House Speaker Kevin McCarthy being ousted from his position. As we wrote [in the September 26 Digest](... Negotiations are entirely reasonable. Our country's debt load stands at more than 100% of GDP, and inflation remains a problem. McCarthy is trying to broker some kind of deal, which may cost him his job. Meanwhile, the Senate is reportedly working on its own stopgap agreement. Odds are something will get done. These days, things only happen in D.C. when deadlines are near. But do you see how it goes when just a few people in Congress say no to more spending? The whole thing goes off the rails, and the government is on the verge of its fourth shutdown in the past decade. That's still true... And this train is even further off the rails today... A government shutdown is still a possibility in about a month, which is when the current short-term funding deal runs out. It might be more likely to happen now, without a speaker of the House in place and Republicans prepping to debate a replacement for McCarthy. And we probably don't need to tell you how much government activity accounts for GDP. In the meantime, old spending – being covered by the "debt ceiling" deal from earlier this year – and old stimulus (and inflation) are already causing trouble in the bond market. It's all related. As I wrote [yesterday]( but is worth repeating... At the same time, the Treasury Department is unloading a lot of new bonds into the market to finance Uncle Sam's ballooning debt... And the Fed has been reducing its Treasury holdings as part of its effort to slow the pace of inflation... These big-time factors, a greater supply of Treasurys along with shifting market expectations and lower demand, are pushing yields higher (and prices lower) because not enough investors are as interested in longer-term bonds today as they were before. With more investors thinking that interest rates will be higher for the foreseeable future, they are realizing it makes no sense to hold bonds that yield lower today... and the ripple effects are being felt across the markets. What's to Come in the Fourth Quarter On this episode of Making Money With Matt McCall, Matt looks back at the third quarter and discusses what has been driving stocks. Then he turns his attention to what the final three months of 2023 might have in store... [Click here]( to listen to this episode of Making Money 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: [This Signal Happened in 2008 – Now It's Happening Again]( If "credit" makes you think of a card in your wallet, your money is at risk. It could actually be the key to a looming national disaster... and the biggest and most reliable potential gains of the next three to five years. That is, for the few who understand what's REALLY going on. Forensic accountant Joel Litman – who called both the 2008 and 2020 market crashes – steps forward to explain everything... including his biggest warning since 2007... and a tool he has waited 20 years to share with the world. [Get the 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... And his firm is now telling clients to prepare for a worst-case scenario in ONE critical sector of the markets. [Find the full details and steps to take here](. --------------------------------------------------------------- New 52-week highs (as of 10/4/23): CBOE Global Markets (CBOE), Costco Wholesale (COST), and Construction Partners (ROAD). In today's mailbag, some thoughts on rising interest rates... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "I lived through the late '70s and early '80s. Bought two houses and sold them both for a profit. In the early '80s I was not able to qualify for a 30-year fixed-rate mortgage or afford one. I could only get a 5-year balloon note. This is much easier to afford because the monthly payments were mostly interest. The whole cost of the house was not amortized but due in 5 years as a balloon payment (to be refinanced). This is how the bankers and realtors got us through the difficult times of 10%-plus long-term mortgages and they were able to make money too. It worked. Our family got into a house with affordable payments. "This era will work out too. It's called 'creative financing.' I'll bet 5 years from now rates will be lower, maybe not back to 3% mortgages like the 1950s or 2021, but lower than 7%+ today. "The loans of that era were much better than the NINJA (No Income No Job No Assets) loans of 2005-2008 that were then collateralized and created the 2008 bust. The balloon notes of the '80s just gave some time for rates to settle out and still let people afford houses even with a dagger hanging over their head if rates did not go down but they did go down." – Stansberry Alliance member John P. All the best, Corey McLaughlin Baltimore, Maryland October 5, 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 1,179.3% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,001.2% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 877.0% Extreme Value Ferris wstETH Wrapped Staked Ethereum 02/21/20 604.3% Stansberry Innovations Report Wade WRB W.R. Berkley 03/16/12 566.8% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 509.4% Retirement Millionaire Doc HSY Hershey 12/07/07 482.0% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 386.9% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 329.1% Stansberry Innovations Report Engel ALS-T Altius Minerals 02/16/09 293.2% 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 1,041.1% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,023.5% Crypto Capital Wade MATIC/USD Polygon 02/25/21 771.0% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 639.8% 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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