A Day in the Life of a 'Nothing Normal' Market

More fuel to the fire... Bond yields hit another new high... Getting into the Congressional weeds... Another day in a 'nothing normal' market... An ice cream cone brings back GameStop... Eric Wade talks Crypto 2.0...

The 'Melt Up' rolls on...

If you hold any Big Tech stocks in your portfolio, you've probably noticed a sell-off over the past week...

The tech-heavy Nasdaq Composite Index is down nearly 6% overall in the past week. And notable headliners like Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT) have each dropped at least 6% in that span.

Meanwhile, though, the Dow Jones Industrial Average just hit a new all-time high yesterday. To me, it looked like "sector rotation" unfolding in U.S. stocks, a trademark of a bull market.

Then, all the major indexes sold off today... led by the Nasdaq, which dropped 3%, as 10-year U.S. Treasury yields – which we've been tracking for a few reasons – jumped intraday to 1.6%. In other words, lower-risk U.S. government bonds could give investors about the same as the paltry 1.6% yield of stocks in the benchmark S&P 500 Index.

Stansberry NewsWire editor C. Scott Garliss says this dynamic might be short-lived, however. You see, companies with a lot of cash on hand could look to start raising their dividends – like Apple just said it would, for instance...

In recent weeks, we've seen companies like Coca-Cola (KO), 3M (MMM), and Home Depot (HD) boost their dividend payouts. These are all companies with a long history of rewarding shareholders. And Apple is well on its way to building the same reputation.

From a broader market perspective, this trend of increased dividends is a positive. As the worst of the pandemic seems to be behind us, companies are bringing back (or increasing) their payouts.

Despite the rally in U.S. stocks since last March, the S&P 500 companies have largely kept their dividends unchanged... driving down the overall yield of the index as it has hit new price highs.

We may not like precisely why all of this is happening (more and more stimulus, and broadly speaking, the Federal Reserve's "easy money" policy). But we also can't ignore what is reality today for folks who do have money in stocks...

As we've said often here in the Digest over the past few months, in the language of our colleague and True Wealth editor Dr. Steve Sjuggerud... This is the "Melt Up" at work – fueled by previously unimaginable government intervention.

To know the concept is critical to understanding what's happening in the market today.

After that, you can plan to enjoy the price appreciation while it lasts... prepare for what's usually a bumpy ride along the way... and protect your portfolio from threats like inflation and the inevitable "Melt Down" that tops all this madness off.

We're not there yet, though... We're still at the "adding more fuel to the fire" stage.

The House of Representatives is set to move ahead with another stimulus bill tomorrow...

As we've been reporting for weeks, via Scott and the rest of the NewsWire team, Democrats in Congress have the option of pushing through stimulus legislation without any support from Republicans – through the "budget reconciliation" process.

The price tag of the proposed bill is $1.9 trillion. It includes more checks for everyday Americans, though not as many as the first time, and an extension of pandemic-related unemployment benefits, which will otherwise expire in mid-March.

Several Republicans have said that the size of the bill is excessive and that it overreaches and uses the COVID-19 pandemic as an excuse for unnecessary spending. Utah Sen. Mitt Romney said that more than a third of the money wouldn't be spent until 2022 or later.

In any case, because of the nuances of Congress, the bill is going to pass at some point... It's just a matter of what it looks like, how big it is, and how soon it happens.

Getting into the weeds for a moment...

It's important to know exactly what's happening here... when it comes to Congress and their seemingly blank checks of yet-to-be-created money.

The Congressional Budget Act of 1974 allows a simple majority – which the Democrats have in the Senate (50 usually reliable votes, plus the vice president's tiebreaking vote) and in the House – to pass certain types of budget legislation once per fiscal year.

The act was originally set up to allow lawmakers to change policy on spending or taxes to keep the nation's budget in line... And its power has been used frequently over the years – for instance, to cut taxes or to pass parts of the Affordable Care Act.

"Reconciliation" isn't a total green light for the party in control of Congress, though. Items that pass through aren't supposed to add to the deficit beyond 10 years, though that largely sounds like a joke to us at this point.

Senators can also object to items in a bill that they believe are "extraneous" to the budget. But the Senate parliamentarian – in this case, a little-known trained lawyer named Elizabeth MacDonough, who has gotten public praise from both major parties – ultimately decides what is considered extraneous.

This is why we've said in the past that passing a third stimulus bill in 12 months might be messier than a lot of people think... But again, it looks like it ultimately will happen.

The 'more stimulus is coming' sentiment could send the markets higher in the weeks ahead...

That's one of the things on the mind of Ten Stock Trader editor Greg Diamond. He has been closely watching several technical indicators about U.S. stocks this week.

Greg, a chartered market technician, sent an important market update to his subscribers early this morning. In it, he outlined what he's watching – and government policy is tops among them...

The market is being dictated by two things right now... monetary policy, which isn't pulling back any time soon as the Fed said this week, and fiscal stimulus, which may come down to this weekend.

It's troublesome that the market is relying on pure market intervention to stay afloat, but that is what bubbles are made of, that is the environment we are in, so we have to respect that fact.

Notably, Greg is looking at whether the Nasdaq continues making "lower highs" or turns back higher... leading to a broader market reversal to the upside instead. Again, this isn't necessarily what Greg thinks should happen, but it is what could happen...

I say it often – you must have no bias and have no ego. It is all about getting the trade right, not what you said or think would happen. Be open to the possibilities, especially in this market.

Yes, everything is overbought, fundamentals are stretched to levels we've never seen, but the last phases of bubbles are marked by pure emotion. Buying begets more buying. Higher prices beget even higher prices. It defies any logic or reason – again it's pure emotion. This is what bubbles do.

The way Greg sees it, as much fear was in the market this time last year – and indeed, we're just days removed from the anniversary of the February 2020 top – is as much greed as he sees today. He's preparing his subscribers to make short-term trades accordingly. More from his update...

There is nothing normal about what is going on in the market right now, and we have to consider all scenarios to improve our chances of success...

Much of what the market will be focused on is the vote on the stimulus package that takes place tomorrow or into the weekend. This is clearly a catalyst we can't ignore.

If it passes and the market reaction is muted (or a "sell the news" event combined with a lower high in the Nasdaq), OK... we'll likely have our signal that the next big decline is underway.

If we see a big breakout in stocks (especially silver), we can hop on board. So the biggest thing is looking for a confirmation of a lower high in the Nasdaq that will determine our next move.

Speaking of a 'nothing normal' market...

GameStop (GME) is up more than 200% over the past two days.

We thought we were finished with this story, but the "big short-squeezers" are back at it...

We briefly looked at the discussion on Reddit's "WallStreetBets" message board today. It featured a collection of posts on GameStop, mostly about the ideas of "double down," "redemption," "comeback," and clips of confused people on CNBC talking about the ongoing movement of the company's shares.

After the stock popped yesterday, financial-analytics firm Ortex estimated that GameStop short-sellers lost $818 million on trades. It was up 60% today, and if some individual traders put on trades yesterday, they could've made a significant amount of money.

But remember, this second wind for GameStop shares comes after a roughly 85% drop for the stock from its peak last month.

Trading this left-for-dead video-game retailer of millennials' youth is the most obvious example of a game itself, driven by emotion in a euphoric market. We just hope new traders, presumed by many to be armed with stimulus checks, aren't going into debt to play.

The catalyst for this revival...

Yesterday, a few WallStreetBets users were discussing a couple of recent news items... GameStop's chief financial officer will be replaced next month, and the company will be bringing on a few former Amazon executives to focus on its digital operations.

The next thing you know, GameStop activist investor Ryan Cohen – who bought a major stake in the company in 2020 and sits on its board of directors – joined the party. He tweeted a delicious-looking picture of a McDonald's (MCD) ice cream cone with a frog emoji that spurred on more discussion about the stock...

You see, enough Redditors took this as a message from Cohen that indicated something about a moving average convergence divergence ("MACD") technical indicator (known sometimes for its "frog-looking pattern") and linked the ice cream cone to all kinds of speculation...

Either way, a ton of people started buying GameStop again. We can add Cohen to the list of company executives, like Tesla's (TSLA) Elon Musk, who are moving stock prices on Twitter (TWTR).

A couple of takeaways not related to ice cream here...

First, the price of GameStop shares could be wildly unpredictable in the months ahead. It will probably continue until the company either shows real promise to back up the pure speculation that it can turn around its fortunes... or is once again largely left for dead like it was just months ago.

And second, for long-term investors, the day traders' interest in the stock is more of a sign of a frothy market – a "Melt Up" and a "nothing normal" environment – than anything. GameStop doesn't warrant any long-term investment today. And for short-term and new investors, be careful or stay away altogether if you don't understand what's happening.

As Stansberry Innovations Report editor John Engel wrote to his subscribers in his latest issue last week about the GameStop saga...

This kind of gambling doesn't lead to lasting results. And as fast as shares shot up... they plummeted again just as quickly.

So while the strategy proved successful and lucrative for some early investors, others are still recovering from the whiplash. Caught in the lure of quick returns, there's no shortage of casualties left in the wake of the "big short squeeze."

What's more, a combination of factors is propping up an already frothy market. Couple a near-zero interest rate environment inciting a frantic search for yield with free money being paid out by the government as COVID-19 stimulus checks (much of which folks are putting straight into stocks)... and you've got a market cocktail fit for a party.

Look, it's OK to make speculative bets on stocks from time to time. And if you have money to play with and want to make some "just for fun," gambler-style investments, that's your prerogative. But please remember... that's not what we do here.

Instead, John thinks long... He doesn't chase stocks higher. He does his homework and sticks to a long-range plan. You see, before joining Stansberry Research, John worked as a research scientist in a drug discovery lab. It's a unique experience that he brings to investing.

Today, John shows folks how to safely invest in the next technology revolutions through investments based on deep study of the fundamentals – revenue, profitability, assets, liabilities, and growth potential – that indicate a quality business. As he wrote last week...

Market sentiment can move prices significantly in the short term. But it's the fundamentals that drive sustained stock price performance. You can't simply wish them higher.

With this in mind, and the expectations for a short-term pullback in the broader markets, John and analyst Jacob Abrams skipped making a new recommendation in the latest issue of Innovations Report. Instead, they provided an in-depth update on their model portfolio.

It's a great read...

Because the Innovations Report portfolio is so diverse, this "update issue" covers the latest on e-commerce, 5G wireless technology, defense companies, biotech, drug development, automation, and cryptocurrencies.

Existing subscribers should definitely catch up on this issue for a boatload of great information across various sectors, as well as John's latest advice on all of his recommendations. And if you don't subscribe already, click here to get started.

Finally, let's talk about cryptos...

Crypto Capital editor Eric Wade welcomed his new subscribers over the past few weeks with a special treat last Friday...

In his regular weekly video update, Eric brought on BlockFi executive Shayne Mullen for an exclusive interview. And the two crypto experts covered a lot of ground...

They talked about U.S.-based BlockFi's place in the crypto market and how it fits into the "Crypto 2.0" strategy and the decentralized finance ("DeFi") movement that Eric described earlier this month in the Digest. This idea, of course, goes beyond simply buying and holding bitcoin or other cryptos as inflation hedges, stores of value, or speculations.

Companies like BlockFi fit in because they are platforms that give individual investors a place to make interest on their crypto holdings. As Mullen explained...

You can deposit your crypto or stablecoin, and you can earn up to 8.6% [annual percentage yield]. So compare that to a traditional savings account in a bank and you're seeing at least a 10 times better return. Hence, we're seeing a tremendous amount of demand not only in the U.S., but all over the world for that product.

Mullen also shared details about much more, like the company's plans to debut a crypto rewards card with Visa (V). Cardholders could earn bitcoin through purchases like a traditional rewards card, and much more.

Existing Crypto Capital subscribers can catch their entire discussion here. And you won't want to miss it... In addition to the great information, Mullen shared a special offer for Crypto Capital subscribers to earn up to a $250 crypto bonus when they sign up for a BlockFi account.

Please note that Stansberry Research does not get any sort of kickback from this offer, and we're not affiliated with BlockFi in any way. Eric brought on this special guest simply to share expert perspective and the latest developments in the crypto world today.

If you aren't already a Crypto Capital subscriber and are interested in becoming one, be sure to click here to learn more about Eric, his crypto trading strategy, and get started today. Eric is scheduled to share a brand-new weekly video update tomorrow evening.

New 52-week highs (as of 2/24/21): American Financial (AFG), American Express (AXP), Brunswick (BC), Berkshire Hathaway (BRK-B), Colony Capital (CLNY), Comcast (CMCSA), Disney (DIS), Dow (DOW), Enstar (ESGR), Eagle Materials (EXP), Forum Energy Technologies (FET), Innovative Industrial Properties (IIPR), IQVIA (IQV), Ingersoll Rand (IR), JPMorgan Chase (JPM), SPDR S&P Regional Banking Fund (KRE), LCI Industries (LCII), Altria (MO), MasTec (MTZ), VanEck Vectors Oil Services Fund (OIH), Oshkosh (OSK), Invesco High Yield Equity Dividend Achievers Fund (PEY), Seagate Technology (STX), Travelers (TRV), Trane Technologies (TT), Ulta Beauty (ULTA), United States Commodity Index Fund (USCI), Visa (V), Valmont Industries (VMI), W.R. Berkley (WRB), and Zebra Technologies (ZBRA).

In today's mailbag, more examples of real-world inflation. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Inflation has been here for as long as I can remember. I just purchased a new set of tires for my wife's car ($650). About 3 years ago I had some put on an older spare vehicle (same manufacturer) for around $350 & they were a larger, more aggressive style!

"I could go on & on but some of us know the purchasing power of the legal tender has gotten worse since we went off the gold standard. The Feds have been leading us down a fiscally terrible path." – Paid-up subscriber D.G.

"Inflation caused by supply problems have made gun ammo very expensive over the last year. I haven't been to the pistol range in six months. Not because of anything to do with COVID, but hard to get any caliber ammo and skyrocketing prices.

"For example, two popular pistol calibers 9mm and .45ACP. A year ago, 9mm was $12-$15 for 50 rounds FMJ, now $60. .45ACP a year ago was about $18-$20 for 50 rounds, now $80.

"Hopefully, prices will recede once suppliers ramp up production again, but if people are willing to pay these prices then they may be reluctant to lower their prices very much." – Flex Alliance Member K.S.

All the best,

Corey McLaughlin
Naples, Florida
February 25, 2021