Some 'Pivots' Are Better Than Others

A choppy, but rising market... The specifics of this expected 'Fed pivot'... The big difference to know... Analysis in Portfolio Solutions... Where we are today... Keeping our eyes open... The water is choppy, but still rising... On today's opening bell on Wall Street, the major U.S. indexes dropped half a percentage point or more across […] [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] A choppy, but rising market... The specifics of this expected 'Fed pivot'... The big difference to know... Analysis in Portfolio Solutions... Where we are today... Keeping our eyes open... --------------------------------------------------------------- The water is choppy, but still rising... On today's opening bell on Wall Street, the major U.S. indexes dropped half a percentage point or more across the board. That followed Friday's down day on the heels of a government jobs report that showed a rising unemployment rate. Before we go calling a new bearish trend, though, consider this... In the past 30 calendar days, this is the fourth time we've seen the S&P 500 Index decline for two consecutive days. Yet the index is up almost 2%, or more than 20% annualized, in the same span. Today, I (Corey McLaughlin) took a look back at the performance of the U.S. benchmark index since the start of the year... In short, we've seen brief, mini sell-offs in 2024, but the market has recovered after each and pushed higher. This behavior is not new. Since the ripping year-end rally in 2023, tied to expectations for Federal Reserve rate cuts this year, the S&P 500 has closed lower in roughly 44% of trading days this year (21 of 48) but is up about 7%. One could probably use this observation for [a bullish or bearish opinion]( on the market. You could argue that we've seen healthy digestion of gains and stair-stepping consistent with a bull market... Or you could see a sign that things aren't as strong as they may appear beneath the surface. Here's my own take... More and more investors have adjusted to the idea that rate cuts, if they happen, will be smaller in scale and start later in the year than they had expected. But they still expect financial conditions to ease from what they've been over the past two years. For now, we'll go with the price action, which has been choppy but bullish. But we'll keep watching... Weighing the 'bad news'... Longtime readers know that I've said over the past year or two that "bad news" for the economy would likely and perversely be realized initially as "good news" in the stock market. That's because a rising unemployment rate or some other ominous data point could fall into evidence supporting the idea of Fed rate cuts to come. This is what we saw in the final month of 2023 when Fed Chair Jerome Powell mentioned the idea of rate cuts coming, and Fed members wrote down projections for the year ahead that suggested as much. If Mr. Market had a thought bubble, it would read something like: All good. Rip-roaring rally. Better times for investors are coming again. As the market has responded to "sticky" inflation (again), the choppy action has kept the "Fed pause" trade going. But the market still expects that whenever rates do move again, it will be down rather than back up. After hearing Powell talk... and talk... and talk... before Congress last week, rate cuts seem like a near certainty. The central bank "can and will begin" to lower rates in 2024, Powell said on Thursday. What has been happening... I have more than once written that the Fed wouldn't start cutting rates until "bad news" caused the central bank to cry uncle... and that when it did, the economy would be in trouble and need the help. History has shown that in these cases, the stock market has taken strong tumbles in the near term, yet eventually recovers. [In December]( we wrote that we'd be watching for signs of weakness in the jobs market in particular to gauge the possibility of a more serious economic slowdown afoot. We also warned that the "Fed pause" could go on longer than the market was anticipating. The slowdown scenario doesn't appear to be playing out, or at least not yet. Indeed, the Fed's bank-lending rates have stayed put for seven months. Sure, the unemployment rate rose to 3.9% in February, up from 3.7% in January. But the GDP numbers showed greater than 3% annualized growth in the fourth quarter of 2023 and are projected to do so again when the first quarter of 2024 ends. In the meantime, the pace of inflation has come down dramatically from the 40-year highs of 2021 and 2022. (That's not to say nominal prices aren't 20% higher, or more, than they were a few years ago... But the pace of further price increases has slowed down since "peak inflation.") The major U.S. indexes were up last year and again this year, with some stocks like Nvidia (NVDA) posting incredible gains. Yet the central bank seems intent on goosing the economy, anyway. So, why cut at all?... That's a good question... if you take the Fed's "price stability and maximum employment" dual mandate from Congress as gospel... The Fed says it officially gauges inflation using core personal consumption expenditures ("PCE") index data. That number is on pace to approach the central bank's 2% annual inflation target, though with volatility in the month-over-month gains (0.1%, 0.3%, 0.2%, 0.1%, 0.1%, and 0.4% – or 1.2% in the past six months). As Stansberry Research senior analyst Brett Eversole wrote in the most recent issue of our Portfolio Solutions publications... When you study the data this way, it's clear that inflation isn't just coming down... It's essentially where the Fed wants it to be. We did see the six-month figure tick higher in the most recent data, but the overall trend is down. And that means a Fed Pivot is coming. It's just a question of when... Normally, such a rosy picture would not result in rate cuts. But with inflation at the Fed's target, the current 5.5% rates are far too restrictive. And that means the next rate-cutting cycle won't be to bail out the economy... but to simply get rates back to a normal baseline. Brett said he expects the Fed-controlled range of rates to "drop to a more normal 2% to 3%," which history shows has been a "sweet spot for stocks." As of right now, it doesn't look like the central bank will have to lower rates dramatically or quickly to get there. There were plenty of [reasons to be skeptical]( and I may get some hate mail for what's about to follow... But right now it looks like a "soft landing" may have been pulled off, at least as far as the Fed is concerned. A congressman asked Powell last week if the Fed should declare a soft landing through "some official statement that would give people some comfort," said Representative Al Green, a Texas Democrat. "I don't think by us, no," Powell replied. "We wouldn't be declaring victory like that." You could imply from the comment that Powell thinks someone else could. Don't forget, the people who work at the Fed are human... The Fed's inclination to lower rates may also have to do with a wall of debt, financed at abnormally low rates in prior years, coming due across an economy with higher rates this year... Also, [if one thing scares central bankers the most, it's deflation]( – and the Fed doesn't want to risk going there. (See China.) The point is, though, that the Fed can still get out of this whole inflation mess that it helped create... looking like they did something right for the time being while the unemployment rate remains near lows at less than 4%. Of course, inflation could spike again should rates go lower. But if we know anything about the Fed, it's that it loves to fight the last war, not the next one. What this kind of 'Fed pivot' means for the market... In the Portfolio Solutions issue I mentioned, our team published a terrific analysis of all things "Fed pivot." That's when the central bank shifts from a rate-hiking phase and then "pivots" into a rate-cutting cycle. Often, the Fed cuts rates when the economy is crashing, like the dot-com blowup, the great financial crisis, or the COVID-19 panic. Rate cuts in calmer times are quite different. As Brett explained... When you study the history of Fed rate-cutting cycles, it's easy to shape the data into whatever story you want to tell. If you've got a bearish tilt, you can flag a rate-cutting cycle as a marker of pain to come. After all, the Fed often cuts rates when the economy is facing recession. And every major stock market decline happened alongside a major recession. If you want to spin the data bullish, you can note that lower rates act as stimulus. They should move stock prices higher. And on average, stocks do move higher after the Fed begins cutting rates. Both of those stories are technically true. But the goal of telling a simple story misses the real truth... Rate-cutting cycles tend to be binary. They're either very good or very bad. Brett showed a series of charts and tables covering rate-cut cycles since the early 1970s and how U.S. stocks performed over various time periods afterward. I encourage existing subscribers and Stansberry Alliance members to check out everything in full [here](. I'll share just one more excerpt here today to help illustrate the main point... For example, as Brett showed, there have been seven distinct cycles of interest-rate cuts from 1983 onward. These are periods where the Fed consistently hiked rates and then "pivoted" to cutting them... And as he showed, these seven periods of rate cuts clearly point to the idea he outlined in the quote above: that rate cuts cause stocks to either fall precipitously or rally in a big way. There was no "in between." As the following table shows, stocks went up most of the time after the Fed began cutting rates, but the two that led to losses were painful... amid the influence of the dot-com bust and the great financial crisis. The average gain for the five winning periods was 12% after a year and 43% after two years. But for the two losing periods, stocks dropped an average of 20% after a year and 34% after two years. The Fed emergency rate cut to near zero in March 2020 came amid a rapid bear market that lasted only a month or so. And it followed the start of the Fed cut cycle in 2019. This also fits the hypothesis. In short, the last three rate-cut cycles have also happened amid financial chaos, so it makes sense for people to expect the same thing to happen this time. The trends were consistent in the high-inflation 1970s and early 1980s, too, Brett said, though that period featured more erratic Fed policy and made it harder to cleanly associate returns with each cutting cycle. There was one obvious losing period during the 1973 stock market bust and negative one-year returns after a pair of rate cut "pivots" in 1981 from former Fed Chair Paul Volcker, but Brett said... Still, the general idea holds true. Rate-cutting cycles are good for stocks most of the time. But when they're bad, they're very bad. Again, existing Portfolio Solutions subscribers and Stansberry Alliance members can find all of this research [here](. But here's the point we want to make sure you see, as Brett said... If the economy isn't crashing, then rate-cutting cycles tend to work out just fine. That's where we are today. On the heels of Friday's jobs report, the S&P 500 was off only slightly Friday, but the tech-heavy Nasdaq Composite Index led the way down, off 1%. These indexes were down slightly again today, while the small-cap Russell 2000 finished nearly 1% lower and the Dow Jones Industrial Average was up slightly. This may be a taste of bad news for the economy turning out to be bad news for stocks... or it might be just another day of chop in an otherwise rising stock market. We'll keep our eyes open for more signs that might tell us that the story is changing, or that it's not. This week, we'll get a couple more macroeconomic signals. Tomorrow brings the next consumer price index ("CPI") inflation reading covering February. The producer price index ("PPI") that measures businesses' costs comes out on Thursday as well, as does a key report on retail sales. Uncle Sam's monthly "budget report" also comes out tomorrow. That should be interesting. Sizing Up Big Moves in Big Names In this week's Diamond's Edge, Ten Stock Trader editor Greg Diamond analyzes his "favorite stock"... shares his technical picture on Super Micro Computer (SMCI)... and updates viewers on Microsoft (MSFT) and Apple (AAPL). For more free videos, [check out our YouTube page](... And, if you're interested in more research and analysis from Greg, [click here for information]( on how to get started with a subscription to his Ten Stock Trader advisory. --------------------------------------------------------------- Recommended Links: [Make This Election Money Move NOW]( This could be the SINGLE most important month of the presidential-election year, but NOT for the reasons you might think. Because while most Americans will be focused on the elections and polling data... they'll be completely blindsided by a massive election surprise headed straight for U.S. stocks, according to Marc Chaikin. That's why he's urging you to make ONE critical move with your money. [Get the full details here](. --------------------------------------------------------------- [Beware Executive Order 14067]( Last year, the Federal Reserve quietly rolled out the first phase of currency changes that could make President Joe Biden's Executive Order 14067 a reality. One 24-year market veteran reveals a hidden clause in Section 4 that could transform the U.S. dollar forever as soon as today, March 11. [Don't buy another stock until you see the proof, right here](. --------------------------------------------------------------- New 52-week highs (as of 3/8/24): Abbott Laboratories (ABT), American Financial (AFG), Arhaus (ARHS), Peabody Energy (BTU), CBRE Group (CBRE), Sprott Physical Gold and Silver Trust (CEF), Dimensional International Small Cap Value Fund (DISV), SPDR Gold Shares (GLD), Iron Mountain (IRM), VanEck Morningstar Wide Moat Fund (MOAT), Sprott Physical Gold Trust (PHYS), Phillips 66 (PSX), Construction Partners (ROAD), SPDR Portfolio S&P 500 Value Fund (SPYV), Stryker (SYK), Textron (TXT), ProShares Ultra Gold (UGL), and ProShares Ultra Financials (UYG). In today's mailbag, a subscriber adds to a piece of feedback in Friday's edition, which raised the idea that economists' thoughts on the economy don't square with how people feel about it... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "[Quoting Darrell W. in Friday's mail]: 'I am perplexed when otherwise smart people equate inflation with a 'hot' or 'robust' economy.' "The real problem is since 1971 when our dollar lost the last peg to gold, we have had a currency which is pegged to nothing. Google how much the 1971 dollar lost. I did. It was 98%. [Editor's note: We've written this a few times here, too.] That means the 1971 $1.00 is now worth $0.02, two cents. Of course everything costs more. What they are buying it with, currency dollars, is worth a lot less than it used to be worth. "Greedy unions are trying to regain their purchasing power that currency devaluation took away. Companies have higher input costs and must make a profit or go out of business, like stop making bread. "Log onto usdebtclock.org and watch your currency in action via the national debt and your personal share as a taxpayer... "Boys, girls, everyone, we ain't seen anything yet. And no, it is not just Biden's fault. "Our elected Congress raised our debt ceiling more than 80 times. How many more times before we catch on?" – Subscriber Bernard B. All the best, Corey McLaughlin Baltimore, Maryland March 11, 2024 --------------------------------------------------------------- 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 1,345.7% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,289.7% Stansberry's Investment Advisory Porter wstETH Wrapped Staked Ethereum 02/21/20 1,046.0% Stansberry Innovations Report Wade ADP Automatic Data Processing 10/09/08 881.0% Extreme Value Ferris WRB W.R. Berkley 03/16/12 770.9% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 614.8% Retirement Millionaire Doc BTC/USD Bitcoin 01/16/20 611.8% Stansberry Innovations Report Wade HSY Hershey 12/07/07 477.6% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 447.3% Stansberry's Investment Advisory Porter NVO Novo Nordisk 12/05/19 377.6% Stansberry's Investment Advisory Gula 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 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 2,291.8% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 1,723.2% Crypto Capital Wade ONE/USD Harmony 12/16/19 1,326.7% Crypto Capital Wade POLYX/USD Polymesh 05/19/20 1,084.8% Crypto Capital Wade MATIC/USD Polygon 02/25/21 927.2% 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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