An Important 'Everything Was Down' Day Note

'The top is in'... The Nasdaq and S&P 500 break below key levels... An important 'everything was down' day note... The Fed and the threat of two wars... A massive reversal in stocks... A solution for your portfolio needs...

Our Ten Stock Trader editor Greg Diamond got right to the point this morning...

As he told his Ten Stock Trader subscribers around 10:30 a.m. today...

The top is in.

Those are four important enough words, written with confidence, that I (Corey McLaughlin) want to pass along to all paid Stansberry Research subscribers today...

You might already have been feeling this. As of today's close, the Nasdaq Composite Index and benchmark S&P 500 Index are now down 14.5% and 8.5%, respectively, since their most recent highs...

And as of this morning, Greg said several of his indicators had broken key technical "support" levels, meaning that there is room for more declines ahead in the next several days and weeks.

But I don't want to startle any and all of you either...

To be clear, Greg is not saying stocks will go down forever, or that this is the "top" to end all tops... But he is saying that the steady bull market trend we've seen since March 2020's bottom has been broken.

For now.

This moment in time is relevant for anyone with any amount of money in the markets...

As I'll explain today, if you're investing for the long term, you've built a well-diversified portfolio, and have properly prepared, I invite you to wash away any tinge of panic right now...

Heed your stop losses if they have been hit, of course... And if our editors suggest selling any of their recommended positions, they will send instructions.

To a similar point, this sell-off might end up offering great buying opportunities if you have cash on the sidelines.

But if you've been speculating in short-term positions or simply don't like seeing any losses in your portfolio at any time, there's no way to sugarcoat it...

The stock market is messy right now...

We've preached that the word "volatility" could define the markets in 2022 – given uncertainties about the pandemic, inflation, and global monetary policy. And, the definition is playing out already.

The tech-heavy Nasdaq, which has been selling off since November, was off by as much as 5% today – almost 18% off its all-time highs a few months ago – but had a stunning reversal in the afternoon to finish up 1%.

Even with that late move into positive territory, the Nasdaq is still about 6% below its 200-day moving average (200-DMA) – a good measure of real weakness.

Similarly, the benchmark S&P 500 was down as much as 3% today, but it finished a smidge higher and is sitting right near its 200-DMA.

At one point today, every one of the 11 major U.S. stock market sectors were down.

This is not what you see in long, steady uptrends.

As Greg wrote this morning...

It's going to be a roller coaster for the rest of the year, so emotional strength will be tested.

To that point, pretty much the only index that was up all day long was the CBOE Volatility Index ("VIX") – considered by many as the market's "fear gauge." It spiked as much as 32% to its highest level since November 2020.

With all this in mind, and ahead of a key Federal Reserve meeting this week, Greg followed up with readers this afternoon to say he's waiting to see what happens the next few days before recommending any new short-term trades.

As he wrote, he's always willing to be wrong...

We hesitate to ever attribute anything to one specific reason for this volatility we're seeing, especially a broad-market sell-off and massive rally in one trading day... but a few things have markets rattled today and point to the same issues.

We've been hammering a few points here for weeks and months...

It seems Wall Street, and now enough retail investors, are freaking out over the Federal Reserve's next policy move.

Inflation has been growing at a record rate, and this week, the central bank will announce what it plans to do... or not do... with interest rates and other policies to slow rising prices...

If you've been following along with the Digest for any period of time over the last year-plus, you know we've been expecting the Fed to eventually confront this situation...

Now, the bank's leaders are finally meeting to make decisions starting tomorrow. Investors will be hanging on every word from Fed Chair Jerome Powell when he speaks to the media on Wednesday.

Keep in mind, the Fed's benchmark overnight lending rate has been near zero since early March 2020. And the bank hasn't raised rates at all since the end of 2018, when we also saw a major stock market sell-off.

As our Stansberry NewsWire editor C. Scott Garliss told us in a private note today...

It boils down to uncertainty.

Money managers are worried about the potential for inflation to rise further and faster than anticipated, the Fed having to hike interest rates sooner and higher, and the potential fallout for global growth.

But it wasn't just Wall Street traders moving the market today. According to a report from Bloomberg, retail investors were mostly to blame for this morning's big sell-off...

In a spasm of panicked selling early Monday, retail investors offloaded a net $1.36 billion worth of stock by noon, most of it in the first hour, according to data compiled by JPMorgan Chase & Co. strategist Peng Cheng.

Plus, there's a lot more going on for one Monday in January.

It's looking like two ground wars could break out simultaneously...

And this is contributing to economic concerns as well...

Tensions are high on the Russia-Ukraine border in Eastern Europe and in the United Arab Emirates ("UAE") in the Middle East...

If you're like most people, both regions conjure images of oil – whose price is often associated with inflation... What's more, potential conflicts related to this are big risks for the global economic outlook.

In recent days, both Russia and the U.S. and its North Atlantic Treaty Organization ("NATO") allies are saber-rattling about "responding appropriately" to the other, should military presence continue to grow in the area...

Russia has 100,000 troops on the Ukraine border, and Western officials don't seem to know for sure what exactly Russian President Vladimir Putin wants. Much of it boils down to not wanting Ukraine to be allowed to join NATO... and money.

The concern for the global economy is that Russia is the main supplier of crude oil and natural gas to the European Union countries. And as Scott told us today...

The worry is any sanctions on Russia due to an invasion in Ukraine could cause Europe's largest energy supplier (Russia) to cut off fuel, driving oil prices and inflation higher.

If things go really haywire in or near Russia, investment bank JPMorgan Chase (JPM) recently said it sees a scenario in which oil could jump to $150, oil production could contract by as much as 2.3 million barrels per day, global inflation could increase from 4% to 7.2%, and global economic growth could drop from 4.2% to 0.9%.

Meanwhile, in the UAE – located across the Persian Gulf from Iran and considered the business hub of the region – the military shot down a pair of missiles this morning that were fired at the city of Abu Dhabi by Iranian-aligned Houthi militants.

This is being seen as a proxy battle between Saudi Arabia and Iran in the region, stemming from control of oil. As global news service Reuters reported today...

The Houthis, battling a Saudi-led coalition that includes the UAE, have said they aim to punish the UAE for backing militias that are blocking their attempts to capture oil-producing regions in Yemen.

According to Reuters, a spokesperson for the militants said, "We advise foreign companies and investors in the UAE to leave as it has become unsafe"... and added the group was ready to "meet escalation with escalation."

The UAE is OPEC's third-largest oil producer in the world. You can see why this is concerning to people well beyond the Middle East.

And we haven't even mentioned China or Taiwan yet...

For now, folks with a lot of money in the markets appear to be recalibrating to new Fed policies... potential geopolitical concerns... and the uncertainties that both things present...

For instance, we've heard a few optimistic market observers say that inflation has peaked...

That might be true, although it also depends on what numbers you are using to measure inflation. And anybody making a prediction today won't know for sure about the path inflation takes from this moment until many months down the road... So it might be an optimistic view, but it does not change anything in any way right now.

For now, so long as the price of oil stays in an uptrend and most prices don't go down at the store, we're willing to bet prices of many goods will continue to go higher or stay at historic highs.

Even if the Fed does raise rates, supply-chain issues aren't going away anytime soon... And all that government-created "easy money" that we've seen over the last two years is well in the system now.

At the very least, inflation could remain higher than it has in decades, even if it dips some. This is the part that many people who don't buy food, diapers, and toilet paper don't seem to understand...

Inflation is already here, and it's hurting everyday people... and it will continue to long before the government can successfully do anything to stop it. I've been saying this for nearly a year.

As Greg wrote today...

The Fed is between a rock and a hard place. If it's hawkish [in favor of higher rates], stocks won't like it. If it holds off, inflation will remain a problem (at least in the short term).

As we wrote last week, if you pair rising inflation with slowing economic growth in general to last year's... you have a period of "stagflation" ahead that is depressing for pretty much anyone who cares about money.

Alternatively, even if you're in the camp that rising inflation will decelerate in the months ahead, you've still got a deflationary period featuring slower growth.

A relatively stronger dollar also means a tougher time for many countries around the world that are buying U.S. debt.

None of this screams "raging bull market" like it did coming out of the March 2020 bottom.

But this is what happens at some point in a low-rate, easy-money world like the one we've lived in for over a decade.

We're talking only about a change from historically low interest rates to slightly less historic lows, and the major U.S. indexes are gyrating wildly...

The point is, as we've been saying, expect more volatility ahead in 2022...

Days like today might happen again.

Are you ready for it?

Given what we're seeing in the markets today, it might feel overwhelming to think of this question right now. You might feel more like closing your computer instead and hoping it all goes away...

If you're in this game for the long term and have taken our editors' advice over the months and years, that actually might not be a bad idea.

Given how high stocks – particularly tech and growth stocks – have been valued lately, a pullback has been overdue... and we've been warning of volatility around any "Fed tightening" move for months and months...

But still, just several weeks ago, we didn't foresee this scenario playing out exactly as it is...

The good news is that if many stocks weren't going down in this scenario, you might want to be more concerned... That would sort of mean that the market didn't make sense.

If you're on the wrong end of some short-term trades, that probably doesn't make you feel any better today. But if you're in this thing for the longer term, beyond this quarter, take a step back for a moment...

Ask yourself a couple important questions...

1. Do you expect stocks to go up forever?

If yes, stop reading – can't help you. Go see Dave Portnoy. If no, move on to No. 2.

2. Is my portfolio diversified?

If you were out over your skis and overinvested in tech or growth names – which we wouldn't suggest – you're probably hurting today.

If this is the case, you're definitely down more than if you hold a well-balanced "all weather" portfolio of stocks of the world's best businesses and other high-quality assets, which we suggest.

Because, you see, not everything went down today... or, at least, not as much as everything else...

Home-improvement retailer Home Depot (HD) – a great business – was "in the green" much of the day and outperformed, finishing up 4%. And coffee retailer Starbucks (SBUX), one of our favorites, was up 2%...

In times like these, the value of "chaos hedges" – like gold – also becomes clear again... The price of gold was up just a little bit today.

And so were inflation-protected bonds, which our colleague Dr. David "Doc" Eifrig has talked about before as a "smart place to park cash during an inflationary period"...

These are all parts of a well-rounded portfolio that grows in the good times and protects your wealth in the tougher conditions. Because they come and go, like the seasons.

3. What is my time horizon for the stocks I own?

This is a very specific question to ask that can clear up a lot of concerns for many folks.

Do the stocks you own match your intended time horizon and the goals you have for them? Have you even considered this?

In other words, is your portfolio made up of stocks or positions you're in because you were bullish on the next three months and wanted to make a quick gain to pay for a vacation? If so, things aren't looking good right now...

But do you plan to own these stocks longer than the next few days, weeks, or even months? And were you hoping for them to grow, protect, and build your nest egg? If so, and your stop-loss levels haven't been hit, think hard before selling anything.

If you're looking over the long term, it's good that these companies or assets are paying you dividends in the meantime... You'll get more shares at a cheaper price than you would have at a higher valuation.

But there's one last thing...

I also get that it can be extremely difficult to put this advice into action...

Or at least feel confident in doing so... It's one of those "easier said than done" ideas.

In fact, building a well-diversified and properly allocated portfolio might be the thing individual investors overlook the most...

How do you properly diversify and build an "all weather" portfolio?

This is where most folks I know get hung up while investing – and for good reason... It's complex.

First off, nobody ever teaches you this stuff in school. And if you are curious about it, it takes some time and experience to "get it right" and can take more time to maintain once you do.

So many people just pick a number of shares – or amount of money – that they think "feels" right when they're buying a stock. It's why our Digest about considering "beta" and "risk management" a few weeks ago was so well received by folks.

To take that discussion a step further today, I urge you to consider one of the most important products we've ever conceived at Stansberry Research.

A solution to one of the most common questions we hear...

I love your research, but how do I put it into one portfolio?

Five years ago, our founder Porter Stansberry decided to launch a portfolio solutions product that is made up of the best of our research – stock picks, macroeconomic analysis, and more – and sorts it into a fully allocated, actionable portfolio.

Why? Porter put it well in an essay several years ago...

For some reason, it seems that most people don't take good investment decisions (asset allocation, position sizing, and risk management) seriously...

Likewise, it seems like some law of human nature dictates that most people will only buy investments that are extremely risky and volatile. Subscribers tend to completely ignore our best advice, which is to build a portfolio around a firm foundation of super-high-quality, low-volatility stocks.

I'd estimate about 90% of your actual investment results are dictated by your allocation decisions – how much capital you put into each position – not which particular stocks you buy.

If you want to know more, I suggest you sign up for an exciting presentation that we have planned for later this week.

Stansberry Research partners Dr. Steve Sjuggerud, Doc Eifrig, and our Director of Research Matt Weinschenk are sitting down together at 8 p.m. Eastern time on Thursday, January 27, to talk about how to prepare your portfolio for the year ahead...

If you're nervous about what might happen to your investments this year and want to learn more about how to build an "all weather" portfolio, this is a must-watch...

Steve, Doc, and Matt will share more information about a powerful way to invest and how to tune out all the bad news... scary headlines... and mainstream financial-media noise... and build a portfolio that we would recommend to friends and family.

On days like today, this idea feels even more valuable than most. Click here to sign up for this event right now. It's free, we just ask that you register in advance.

The Fed: Crash the Stock Market or Stop Inflation?

The string-pullers at the Federal Reserve are in a "very difficult predicament" when it comes to raising interest rates and how it will play out in the markets, says George Gammon of the Rebel Capitalist.

In this edition of the Outlook 2022 series: The Tipping Point, our editor-at-large Daniela Cambone talks with Gammon as he outlines this scenario... how the Fed could crash the stock market or try to stop inflation... and why he suggests to have cash on the sidelines this year...

Click here to watch this video 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 Twitter.

New 52-week highs (as of 1/21/22): Hershey (HSY).

In today's mailbag, feedback on Dan Ferris' Friday Digest... and a subscriber checks in with a cautious take on the markets today... We're wondering: Do you agree or disagree? Or, do you fall somewhere in between?

And, either way, we'd like to know what concerns you have about the markets today.

Let us know with an e-mail to feedback@stansberryresearch.com. As a reminder, we can't provide individual investment advice, but we try to address as many questions and comments as we can.

"Dan Ferris' January 21st Digest is one of the best articles/commentaries on the market I have ever read (and I've been in the game +3 decades). Thank you." – Paid-up subscriber David T.

"Hi Dan, Kudos to you for making some correct calls that seemed bold at the time, but totally reasonable now, like PTON. I told my wife I would buy one of those $2,500 bikes for about $500 in another year, and not have to pay the subscription fee. I saw a Tonal home workout storefront and went in recently to see what that was about, and they have a similar model... $4k and a monthly fee and big holes in your wall when you sell it in a couple years.

"Regarding interest rate hikes... I don't really understand the comparison to the '80s when Volcker cranked up rates to stop inflation. In my opinion, the current inflation is not due to a runaway economy that needs to be cooled off by higher rates. This is simple supply and demand.

"The supply-chain shortages and labor shortages have very quickly resulted in what every freshman economics class ever taught. Supply goes down, demand goes up, prices go up.

"Raising interest rates isn't going to magically fix the supply shortage, or convince people to go back to working low paid jobs they didn't particularly care for.

"Jamie Dimon guessing at seven rate hikes seems ignorant of the real cause of the inflation. Not that I am saying the Fed is really smart and won't think the same thing and make a gigantic mistake that they will also try to fix in foolish ways, but...

"No one knows, so they should do as little as possible. How about we try THAT for once. Thanks for the decade or more of education you guys at Stansberry have provided me... " – Paid-up subscriber Rick V.

"Dear Stansberry Research, You told me years ago that there were stages in the market as to when to buy, sell, or be cautious.

"When everyone has a big smile on their face because all of the stocks they bought have huge gains and your friends can't stop talking about the gains they've made, it might be time to sell.

"When everyone has a sad face because their stocks have taken a beating, it might be time to buy. I don't think we have seen the bottom yet. I believe there is more downside.

"When you see ads on TV by Matt Damon to buy crypto because 'fortune favors the brave,' it might be time to sell. When you see ads on TV during major football games to buy QQQ, then it might be time to sell.

"Why do they broadcast these ads? To get the very dumb money to enter the market in the last stage of the bull run. In this way, they can squeeze every last dollar out of the dumb investor. These dumb investors know nothing about a stock's valuation. They buy on emotion rather than logic. They also will incur some massive losses, which happened to them last week.

"Logic told me near the end of 2021 that because the market has valuations that are the highest they have been in history it might be a good time to sell, and I did.

"Will there be a time in the near future to start buying again? Probably. The time to buy stocks is when valuations make sense. Right now valuations don't make sense. Plus, interest rates rising, inflation, and the end of bond buying by the government should all contribute to some rocky times.

"My advice from years of investing, trading, stock buying, chart watching and research tells me to be very cautious." – Paid-up subscriber Eric G.

Corey McLaughlin comment: Well said, Eric, and thank you for sharing with us. That Matt Damon Crypto.com ad on television caught my attention too for the same "hype-y" reason.

All the best,

Corey McLaughlin
Baltimore, Maryland
January 24, 2022