Investors Have Gone 'All in' Again

Did you miss last night's Bull vs. Bear Summit?... Retail sales plunge the most since 2009... Sign of a bottom in unemployment... Investors have gone 'all in' again...

We'll begin today's Digest with a bit of 'housekeeping'...

As you may know, our friend and colleague Dr. Richard Smith hosted his 2019 Bull vs. Bear Summit last night.

During the event, attendees heard the latest market outlooks from several highly respected bulls and bears, including Stansberry Research's own Steve Sjuggerud and Dan Ferris.

They also had the chance to take advantage of an unbelievable offer to try Richard's proprietary TradeStops software at a massive discount to the normal price... and receive more than $5,000 in additional bonus research absolutely free. It was the single best offer Richard has ever made for this service.

But if you weren't able to attend last night, you're not out of luck just yet...

For the next few days, you can still watch a full replay of the event. And you can still take advantage of this same special "night of" offer. But don't delay... This opportunity won't be available for long. Click here to learn more.

Now, regular readers know we believe it's premature to declare the end of this long bull market...

However, the bears have had plenty of evidence in their favor recently. And they received some more today...

This morning, the U.S. Department of Commerce released retail sales data for December. (Like several other economic reports, this one was delayed due to the government shutdown.) And as our colleague John Gillin noted to Stansberry NewsWire readers earlier today, it was not worth the wait...

The value of all sales was down 1.2% month over month, the worst decline since September 2009. Ex-auto sales were down 1.8%. Online sales were off 3.9%, the biggest drop since November 2008.

There will be excuses made for the weakness... But what is apparent is that the Fed is aware of some fraying at the edges, and this is why rates are on hold. Consumption makes up 70% of the economy.

John was right. We've already heard a number of pundits explain why this decline is no cause for concern...

Retail sales data tend to be volatile and are often subject to revisions. December was unusually cold. The stock market decline and partial government shutdown caused consumers to temporarily become defensive.

They could be right. But given the other signs of economic weakness we've seen in recent months, it's far from certain.

We've also been tracking some early signs of weakness in the job market...

And this morning, the U.S. Department of Labor reported that the number of Americans filing new applications for unemployment benefits rose again last week.

So-called initial claims rose by 4,000 to 239,000 in the week ending February 9. Economists had expected 225,000 new claims last week.

More important, the four-week moving average of claims – which smoothes out the high week-to-week volatility of this data – rose to a new one-year high of 231,750... creating the first series of "higher highs" and "higher lows" in several years.

Again, it's still early, but this could be an indication that the bottom in unemployment is already behind us. And as our colleague Dr. David "Doc" Eifrig noted last month, that has historically been terrible news for stocks.

Of course, the bulls still have reason for optimism, too...

And one of the most important is also the simplest: positive price action. Since bottoming in late December, the market has gone nearly straight up for the past seven weeks.

However, the market can't maintain this pace forever. Even if this is the start of a rally to new highs, the market is sure to take a "breather" or two along the way.

Last week, we showed you two signs that suggest a near-term pullback is likely. Today, we can add another...

According to the latest monthly survey from the American Association of Individual Investors ("AAII") published this week, individual investors are currently holding just 13.3% of their portfolios in cash.

This is not just a sharp reversal from late December – when they were holding more than 20% cash, on average – it's also one of the lowest levels on record.

In fact, since the firm began collecting this data 32 years ago, we've only seen two other times when individual investors were holding less cash than today... in January 2000, at the peak of the dot-com bubble... and in January 2018, just before stocks plunged 10% in nine days during February's "volatility panic."

In other words, according to this indicator, investors have suddenly gone "all in" on stocks like they have only a couple of other times in history.

As always, we don't suggest making investment decisions based on any single indicator. And like all sentiment measures, this one is not a market-timing tool. This extreme could become even more extreme before it reverses.

But along with the other signals we mentioned last week, it's a great reason for caution right now.

New 52-week highs (as of 2/13/19): Ionis Pharmaceuticals (IONS), Kinder Morgan (KMI), Lundin Gold (TSX: LUG), Motorola Solutions (MSI), Starbucks (SBUX), and W.R. Berkley (WRB).

A quiet day in the mailbag. Did last night's Bull vs. Bear Summit change your opinion on the market or reinforce your views? Let us know at feedback@stansberryresearch.com.

Regards,

Justin Brill
Baltimore, Maryland
February 14, 2019