Keep Your Eye on the Ball

Short- and long-term views can be different... Stocks could have a 'Fed pause' rally... Keep your eye on the ball... Unemployment is rising... The Fed wants a recession... Bad news can be good news – until it's not... When stocks bottom... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Short- and long-term views can be different... Stocks could have a 'Fed pause' rally... Keep your eye on the ball... Unemployment is rising... The Fed wants a recession... Bad news can be good news – until it's not... When stocks bottom... --------------------------------------------------------------- I don't want to gloss over this point... I (Corey McLaughlin) just [wrote yesterday]( about how the major U.S. indexes snapped back higher, and that it looks like the sell-off of the past three months could go down in our memory as a garden-variety 10% "correction." We also said depending on how stocks perform over the next few weeks – specifically if they moved higher than previous highs in October – a year-end rally could be afoot. That conclusion is based on the analysis of technical traders like our Ten Stock Trader editor Greg Diamond. Three of the four major indexes were higher again today... with the tech-heavy Nasdaq Composite Index up the most and by more than 1%. This could be the start of a breakout, as we noted as a possibility yesterday. But don't get it twisted... Risks for the economy in the longer term – namely a recession – are still in the air. I keep thinking back to one point our company's founder, Porter Stansberry, made in his new video presentation that debuted two weeks ago... The No. 1 thing that I want you to understand from this presentation is I believe we're going to have a very serious recession next year. I believe we're going to have another financial crisis. Many of our editors and analysts are considering the same possibility. So, with this in mind, I want to do three things today... - Explain a juncture that I think the markets have arrived at... which has all the markings of a pre- or early-recession period. - Share a reminder to "keep your eye on the ball" (your goals) and not fall into the trap of listening to short-term noise you may hear in the next few weeks or months. - Point you in the direction of a trading strategy that can benefit from whatever direction the economy or stocks head next. Away we go... In short, 'bad news' for the economy is being taken as 'good news' for stocks today... We've [written about this idea before](... and the concept has appeared in the markets again over the past week or so... It has to do with our foils at the Federal Reserve and elsewhere in Washington. As we wrote yesterday... A Federal Reserve meeting wrapped up on Wednesday, where the monetary-policy string-pullers stood pat with interest rates. And a key Treasury announcement showed still-increasing long-term bond issuance, but less than was expected. The latest monthly jobs report on Friday showed a slight uptick in the unemployment rate to 3.9% (from a low of 3.4% earlier this year), suggesting that there might not be much additional reason for the Fed to raise interest rates moving ahead... The combination took some bite out of the higher long-term Treasury yields we've seen the past few months and boosted stock prices. So, that's good news – for now. Stocks are ripping... So far, enough folks with enough money in the markets are happy to see a slightly rising unemployment rate and a continued general easing of "official" inflation numbers. These folks see those trends as signals that the almighty Fed will pause its interest-rate hikes until further notice, meaning it might be done raising rates to "fight" inflation. That's also good news for investors – for now. Throughout history, a 'Fed pause' has been bullish for stocks... As Stansberry Research senior analyst Brett Eversole [wrote earlier this year](... Over the past 40 years, stocks have a history of soaring after the Fed pauses rate hikes. And it means we could see the markets soar 20% over the next year. Let me explain... You might not like the idea of jumping into the market when the Fed stops hiking rates. After all, a rate-hike cycle happens for one reason... to cool down the economy. And by the time the Fed quits, the cooldown is in full effect. That means the economy is weaker, and a recession could be on the way. Brett acknowledged that buying stocks in that environment may seem like a fool's errand. That's not what history shows, though, he wrote... But remember, the stock market is a forward-looking machine. It prices in whatever we expect to happen over the next six to 12 months. Because of that, buying when the Fed pauses rates is a smart bet. The table below shows what happened a year after each pause in the rate-hike cycle over the past four decades. Take a look... We've seen six other rate-hike cycles in the past 40 years. In five of those cases, stocks were dramatically higher a year later. And the average gain was an impressive 19.5%. The only losing year was after the Fed pause in 2000. And it was before the worst stretch of that bear market. Still, stocks only dropped 11% over the following year. The logic for bullishness upon a Fed interest-rate "pause" is that, generally, it means expectations of the relative future "cost of money," or debt, aren't rising anymore. And the next expectation is for rate cuts. As Brett continued... These numbers might not gel with your expectations. But the forward-looking nature of the stock market really does explain what's going on. Just think about our current situation... Stocks fell 25% peak-to-trough last year. During that time, unemployment fell... the worst of inflation passed us by... and the seemingly inevitable recession never materialized. Stocks lost a quarter of their value anyway. And that happened because the market had already priced in the likelihood that those bullish trends would reverse. The stock market's forward-looking mechanism doesn't always do a perfect job. But most of the time, if folks are worried about something in the future, the market has already discounted prices based on that possibility. That's why when the Fed pauses, stocks tend to soar. Even though the worst of the economic pain isn't over yet, it's already priced in... which puts a floor under expectations. That means stocks tend to move higher, and fast. If the Fed is really done with its rate hikes – and it could be – be prepared for stocks to move higher. And, go ahead, make hay while the sun shines. It might be some time before a recession "officially" arrives, but as I will explain now, it's getting close... Keep your eye on the economic ball, too... If you take just one thing from the rest of today's report, make it the idea that eventually "bad news" – like rising unemployment and a slowing economy – will be bad news for everyone and the stock market. Brett mentioned that when the Fed decides to stop raising interest rates, it's usually because the economy is cooling down... which is the goal of raising rates. It also usually means that the unemployment rate rises, meaning a recession could be ahead. This economic "cycle" may feel different given a pandemic, inflation, wars, politics, or whatever other specific factor, but I'm willing to bet it will end the same way it always does. Take a look at this chart of the U.S. unemployment rate over the past 75 years... The gray areas are recessions... There's a simple, time-tested, valuable pattern here... The unemployment rate is always at or near a record low right before a recession. Why? When unemployment is low, it typically means the economy is "hot." And then, counterintuitively to most people, the long arm of the Federal Reserve decides to make moves that slow the economy down – like raising interest rates at banks – to stem possible high inflation. The Fed wants to trigger a recession... In a higher-rate environment, credit is tightened. We've been seeing this for going on a year... Bankruptcies and delinquencies – both personal and corporate – pile up. Jobs are lost. It's the point – of the Fed, at least, which is tasked by Congress with a "dual mandate" of stable prices and maximum employment. In our case today, the Fed, Congress, and Treasury comingled to prevent an extended recession in 2020 when COVID-19 reached the U.S. with trillions of stimulus dollars and benefits. But it led to 40-year-high inflation... and an economy that wasn't just hot, but boiling and melting things, like our brains and the stock market. Then the Fed raised rates from near zero to above 5% to pour water on the white-hot economy... and now it's indicating it's near the end of those hikes. At the same time, some pandemic stimulus programs have only recently elapsed (like a pause on student-loan payments). So we're only starting to see the "real world" consequences of all the latest government intervention in interest-rate-sensitive instruments, like mortgage rates that have surged from below 3% to nearly 8% in just two years. The string-pullers at the Fed, Congress, and Treasury essentially kicked the can of a "real" recession down the road... until right about now, if you ask me. Unemployment is rising... I have mentioned the importance of tracking the unemployment rate several times this year as part of a set of indicators to "[spot the 'official' recession yourself]( That's because the institution that will actually do it – the National Bureau of Economic Research ("NBER") – by its own admission won't "call" a recession until it's well underway, or sometimes even over. But one criterion for an "official" recession is a rising unemployment rate for a sustained period of time from a cycle low. (Another is the "reversion" of the yield curve, which has also been happening.) The unemployment rate appears to have hit a bottom of 3.4% in April and checked in at 3.9% for October. That's a rise of 50 basis points, which regular readers may remember may be a sign of the economy being on its way to meeting the "Sahm rule." That's when the unemployment rate averages 0.5 percentage points higher for three straight months than its three-month average at cycle lows. This indicator has identified the start of each of the last four recessions correctly and early. It's named for Claudia Sahm, a former Fed economist and not coincidentally a member of the NBER. I was already going to mention this indicator again today, and then our colleague Chris Igou in DailyWealth Trader [published an issue this afternoon]( that focused on just this topic with great detail and a great visual, so we'll quote him. As Chris wrote... This might sound a bit in the weeds. But it's a simple way to measure when unemployment trends are starting to rise. It simply draws a line in the sand for the starting point. And if you look at the past three decades, it's a darn good predictor of when a recession gets underway. The gray bars in the chart below are actual recessions. And the blue line at the bottom is where this indicator triggers... The latest reading is 0.33. That's not in recession territory yet. But notice that it's starting to move higher pretty quickly... just like it did in 1990, 2001, 2007, and 2020. Each one of those cases was right at the start of a new recession. Also notice that we didn't get any fake runs higher in the past 30-plus years. This indicator didn't trigger from 1993 through 2000. Nor did we see it in the early 2000s run between 2002 and 2006... or in the 2010s... or in 2022. The point is, if unemployment ticks up a little more in the next month or two, the Sahm Rule indicator will likely trigger the start of our next recession. And it has a stellar track record of getting that timing right. Now, it doesn't tell us how bad that recession will be or how long it will last. It just marks the starting point. It also shows that we are darn close today. In his issue today, Chris explained how his subscribers could prepare their portfolios should we get a recession. 'But, what about 4.9% GDP?' you might say... Certainly, third-quarter GDP growth of 4.9% annualized is not a sign of recession, right? Right. Not right now. But, counterintuitively, this is another indicator that a slowdown could be ahead. Because the economy is strong... before it's not. Guess what GDP was in the third quarter of 2007 before the great financial crisis? Precisely 4.9% annualized... Here's another bit of trivia: GDP growth in the second quarter of 2000 was above 5% annualized when the Nasdaq was in the early stages of its eventual 78% decline in the dot-com bust that didn't end until 2002. Frankly, this time around, I'm not sure if GDP will slow enough for the shot-callers at the NBER to call an "official" recession until well after it begins or is over. But that doesn't mean we won't see trouble in the economy and the stock market. After all, no one officially said "recession is here" when GDP growth actually did go negative in early 2022 in two straight quarters (a technical recession). At that time, low unemployment meant the NBER's criteria weren't met. It was a "[salamander wearing a top hat]( The stock market sure acted like we were in a recession, though. The S&P 500 fell 25% before generally trending higher since last October. Sorry to be the bearer of bad news, but history rhymes... In summary, bad news can be good news – until it's not... If the "Fed pause" sticks from here, inflation eases, and the economy cools, stocks could go higher. But then the economy will eventually get to the point where it needs help again (recession). And at that point, stock prices are likely to take a hit. Alternatively, if inflation rebounds enough to where the Fed decides to raise rates again, that would likely send stock prices lower as well and make a recession more likely. Either way, history also shows that stocks don't typically "bottom" until during or after a recession, as our Mike DiBiase [has shown here](. As we've shared before, stocks haven't bottomed until an average of 23.5 weeks after the start of a recession... Should unemployment keep going higher over the next two months, that would suggest a bottom for stocks in the middle of 2024... And no bear market since 1955 has ended until the Fed decided to cut interest rates, not just pause them. We might be at the pause. Then comes the next thing... Some of you might take this all as fearmongering... Or perhaps we're a little ahead of ourselves. But this is what I'm thinking about today as we look at the possibility of a leg higher for stocks. Don't lose sight of the big picture when choosing your investments. In the short term (the next few months), stocks could be due for a rally. In the long term (next year), a recession could still be ahead. Both things can be true. I look at today's message as a warning that can't be shared enough – and a reminder to keep your eye on the ball and manage risk appropriately for your own goals and investing timeline. After all, the average loss of the last four bear markets, not counting the brief 1987 and 2020 editions, is 45%. Those are painful. And remember... losses of any size take twice as many gains to just get back to even. So don't be surprised to see stocks rally in the weeks or months ahead, but don't forget the potential risks around the corner into next year, either. To this point... When we think about "risk management," we quickly think about our colleague Greg Diamond, who is constantly preaching the point to his Ten Stock Trader subscribers – and sharing ways to make money in bullish or bearish moves in the market. As you hopefully understand after today's essay, this is a critical, flexible approach to consider right now, given the uncertainty of timing the economy and the stock market's next moves. It pays to have a good guide... Greg is that. I haven't seen anyone else who called the "top" in stocks in early 2022 and the "bottom" in October... On January 13, 2022, he predicted that a crash as bad as 2008 was coming. It began the day after... You could have doubled your money six times with Greg's recommendations and avoided huge losses. In 2020, you could have doubled your money 11 different times leading up to the COVID-19 crash in March, then booked a gain of more than 250% in six days as the market collapsed, using Greg's strategy. It's the same approach he used back when he handled $900 million a day during his time as a trader on Wall Street. I mentioned yesterday that Greg was getting ready to go public with his outlook for the rest of the year and 2024. Good news: [Here is your first chance to register to hear it](. He plans to go live with all the details next Tuesday, November 14, during a new free video event. In the meantime, stay tuned for more directly from Greg here. Tomorrow, we'll share a special guest essay from him that explains more about his trading strategy... his career path from Wall Street to Stansberry Research... and how he views the market. --------------------------------------------------------------- Recommended Links: ['A Massacre Is Coming to the Stock Market']( The man who called the 2020 market crash to the week and the 2022 crash a day before it began now predicts the market will soon see a brutal move. If you know what's coming, you could double your money 10 different times without buying a single stock, as he has shown before. [Click here to learn more](. --------------------------------------------------------------- ['I Found the Answer to Retirement']( A subscriber from New York came forward with his unique story of how he retired early and worry-free WITHOUT stocks... thanks to ONE single idea that anyone can use. Now he sees 16%-plus annual returns with legal protections... and he NEVER has to worry about another market crash again. [Get the full story right here](. --------------------------------------------------------------- New 52-week highs (as of 11/6/23): Adobe (ADBE), CBOE Global Markets (CBOE), Cencora (COR), DraftKings (DKNG), Linde (LIN), Motorola Solutions (MSI), and Qualys (QLYS). In today's mailbag, feedback from a new subscriber... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "I've been part of your investment suggestions for only a week. "It's amazing how your different reports and emails have clarity for both 401k brokerage accounts, in addition to individual accounts. Several other competitors identify 'dos and donts', but have little strength in helping common investors with most of their portfolios in 401k assets. Thank you for simplifying this world with easily executable suggestions. Much appreciated." – Subscriber Mark G. Corey McLaughlin comment: Mark, thanks for the note. It's gratifying to hear this feedback because it gets at the heart of what we do every day at Stansberry Research and the attention to detail our team takes in publishing our work. Our editors and analysts take pride and go to great lengths to offer "plain English" recommendations that individual investors can understand in simple terms and, importantly, actually put into action. Glad you found us. All the best, Corey McLaughlin Baltimore, Maryland November 7, 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 1,249.7% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,123.3% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 800.2% Extreme Value Ferris WRB W.R. Berkley 03/16/12 611.5% Stansberry's Investment Advisory Porter wstETH Wrapped Staked Ethereum 02/21/20 577.4% Stansberry Innovations Report Wade BRK.B Berkshire Hathaway 04/01/09 514.6% Retirement Millionaire Doc HSY Hershey 12/07/07 454.2% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 386.8% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 324.4% Stansberry Innovations Report Engel BTC/USD Bitcoin 01/16/20 306.7% Stansberry Innovations Report Wade 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 Stansberry Innovations Report Engel/Wade 2 Retirement Millionaire Doc 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 1,416.9% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,113.1% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,095.0% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 835.0% Crypto Capital Wade MATIC/USD Polygon 02/25/21 817.7% 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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