Saying the Quiet Part Out Loud

A recession is all but 'official'... The facts say growth is slowing... So does Dr. Copper... Saying the quiet part out loud... Zuckerberg doesn't mind if workers leave... Marc Chaikin's new market warning...

We hate to start this short workweek on a downer, but...

Here's the real deal... A recession in the U.S. is all but "official" now.

You might already be feeling this in your gut, or workplace... and we've been talking about the possibility of a recession frequently for at least the last six months. But now we've got some official numbers that will likely catch more widespread attention soon.

Among other things, this could mean more fear and volatility in the weeks ahead for the stock market.

Today we saw some of it already... The benchmark S&P 500 Index was down as much as 2% today, before reclaiming those losses in the afternoon to close slightly positive.

Prepare and trade accordingly.

I (Corey McLaughlin) have mentioned this widely followed economic indicator several times this year...

The Federal Reserve's Atlanta district releases a quarterly measure of U.S. gross domestic product ("GDP") that it calls GDPNow. This indicator uses the same methodology as the U.S. Bureau of Economic Analysis ("BEA"), the agency that publishes the government's official GDP data.

That means the Atlanta Fed's number gives us a preview of the official GDP number that the BEA will publish later this month.

Late last week – perhaps not coincidentally on the last day of the second quarter – the Atlanta Fed's GDP annualized projection for the second quarter went deeper into negative territory... to negative 2.1%. This followed another week of economic data that showed additional slowing of business and consumer activity.

The negative 2.1% number is the headline I'm talking about that people will pay attention to, at least once the official second-quarter GDP appears on July 28. But if you look a bit closer at this early data, it's unfortunately even worse than it looks...

The GDPNow projection has declined by roughly 4% in just the month of June alone... That's when forecasters started using the most recent real data instead of pure predictions of 1.9% growth that they'd penciled in during the first two months of the quarter.

Using first-quarter annualized U.S. GDP of roughly $24 trillion as a starting point, that means the U.S. economic output probably shrank by roughly $500 billion in the past three months. That's a quarter of the size of the American Rescue Plan stimulus of 2021...

All in all, these are the facts...

In the first quarter, GDP declined by 1.6% from the previous quarter. The decline was 8.5 percentage points lower than fourth-quarter 2021 growth of 6.9%.

In the second quarter, which just ended, GDP was declining again... fast. Pair these realities with a record low in consumer sentiment (because of inflation near record highs) and you have enough to say we're in a recession.

The professional economists haven't said as much yet, but they should soon – and almost certainly will if enough people start to lose their jobs in the months ahead. But the labels don't necessarily matter.

The point is, inflation is still at multidecade highs... economic growth is slowing... and the markets are expecting these troubles to continue.

You can take your pick of supporting evidence...

I've told you about the bull run in commodities over the past year-plus. Now, the trend has turned around...

In the May 17 Digest, I mentioned that the Invesco DB Commodity Index Tracking Fund (DBC) – which tracks futures prices on 14 of the most heavily traded and important physical commodities in the world – was up 50% over the previous 12 months.

Well, now this fund is down nearly 20% in the past month and is trading below its 50-day moving average (50-DMA), a simple rolling-price measure of a short-term trend.

Oil is a big part of the equation. Prices of West Texas Intermediate ("WTI") crude and Brent crude – the international benchmark – plunged today by 9% and 11%, respectively, to around $100 per barrel.

This is potentially good if you're interested in a lower price when you fill your gas tank or heat your house – or maybe want to trade what look to be short-term "oversold" levels. But this trend also suggests the market expects declining demand ahead... because of a potential recession.

We're at a new stage of the post-pandemic recovery and our ongoing inflation story...

This is when the Fed and other central banks play catch-up on inflation, raising interest rates and egging on a recession to bring costs down in the economy.

Our Stansberry NewsWire editor C. Scott Garliss worked for 20 years on Wall Street before joining Stansberry Research. He points out that institutional investors and money managers look six to 12 months ahead when making portfolio decisions, thinking... What will the world look like then?

As Scott shared in our free NewsWire service on Friday, he's seeing signs that professional investors expect economic activity to crater.

Look at metals prices, for example, like copper, steel, or aluminum – key raw materials for so many products. As he wrote...

After all, it's hard to imagine anything being built without steel or copper used in one form or another. If something we consume isn't made from steel, the machine that produces it is. And copper has all types of industrial uses because of its resistance to corrosion, ductility, malleability, and electrical conductivity.

Today, Dr. Copper and other metals are bearish...

As longtime readers know, copper prices tend to predict big turning points in the global economy... so much so that in investment circles, folks say the metal has a Ph.D. in economics.

Clever analogies aside, prices of commodities like copper are in "freefall," Scott says, as measured by Bloomberg's base metals spot price index. And at the start of each of the previous three recessions, we've seen the same market behavior...

In the previous examples, each time the Bloomberg index tumbled more than 20%, it was on the front end of a recession.

From the peak made earlier this March, the index has dropped over 32%.

To add some anecdotal evidence to the picture...

As I wrote in the May 5 Digest, the big thing to watch next as the Fed raises rates to fight inflation is the consequences on the job market... for a lot of reasons.

First, people losing their jobs stinks for all involved.

Second, when it comes to what matters in the macroeconomic picture, the Fed will start to think about reversing course on its money "tightening" policies if unemployment spikes. The Fed sure doesn't want people unable to pay their mortgages and other loans.

The job market is still in pretty good shape overall. The most recent unemployment rate for May checks in at 3.6%... and the labor force participation rate increased slightly in May as well (to 62.3%).

But that will change if Fed Chair Jerome Powell gets his way. At a press conference last month, Powell said that as long as it got rid of inflation at the same time, higher unemployment would be a "successful outcome." So don't say we (or he) didn't warn you more pain could be coming...

Spinning this forward, we can't know for sure what inflation will look like over the next year or so, but if it's lower than it is now, we could then see the Fed deciding to cut interest rates at that point to stimulate the economy once again. And on the cycle goes.

But we're getting a little ahead of ourselves with that line of thought...

For now, CEOs of some of the past decade's biggest growth companies, like Meta Platform's Mark Zuckerberg, are not hesitating to trim their payrolls these days because of tighter profit margins from higher costs and lower growth.

Zuckerberg was particularly pointed on a call with Meta employees last week, telling workers the company was experiencing one of the "worst downturns that we've seen in recent history," and they should prepare to do more work with fewer resources this year.

Some parts of the company will pause hiring, Zuckerberg said. And he indicated he wouldn't mind if some people left Meta altogether by their own choice...

I think some of you might decide that this place isn't for you, and that self-selection is OK with me... Realistically, there are probably a bunch of people at the company who shouldn't be here.

Probably every CEO feels this way somewhat all the time...

And let's be clear... Meta Platforms is not Every Company, USA...

But the point is you don't often hear this sort of thing from business leaders – saying the quiet part out loud – in a raging economic expansion... or bull market... when executives are less inclined to let people go willingly.

Said another way, we've gone from "hiring shortages" to the early signs of layoffs pretty quick.

You might be wondering what to do about all this...

Particularly what the eve of a recession means for your investments...

First off, if you've followed along in the Digest for the past six months, you know we've been expecting a recession to arrive... and for 2022 to be a year defined in part by stock market volatility.

Today, it looks like we're inching closer to an official recession in as early as a few weeks if we see negative GDP growth in consecutive quarters. And stock market volatility has been elevated all year along.

Hopefully, you've stockpiled an appropriate amount of cash at this point, in line with your goals – either by selling "too early" (which wasn't too early at all) or by sticking to your stop losses – to go with a core portfolio of high-quality, low-volatility stocks.

Maybe you've also put on some bearish trades, like the kind our Ten Stock Trader editor Greg Diamond has been recommending all year long...

And hopefully you have benefitted from protecting your portfolio against inflation by holding hard assets like gold, which has outperformed most every other asset this year simply by not going down as much (off 3.5% so far in 2022).

The Dow Jones Industrial Average is down 15% this year... the S&P 500 has lost 20% year-to-date... and the tech-heavy Nasdaq is off 28.5%, even with a 1.75% gain today.

This story hasn't changed much over the past several months...

We first shared the following warning roughly three months ago...

It came from our friend Marc Chaikin, the founder of our corporate affiliate Chaikin Analytics. If you've been with us for the last year or so, you should be familiar with Marc.

Marc's inventions and indicators are part of every Bloomberg Terminal in the world because they are that valuable... In short, he's a Wall Street legend.

In the March 29 Digest, Marc wrote to you that the "rolling crash" was already here, meaning that various sectors of the market were selling off dramatically and that the trend wasn't finished yet. As Marc wrote...

Most folks right now are worrying about the next big market crash. They're scared that it will come soon.

But if you're looking at the market like I do – and like a hedge-fund manager would – you know the real answer...

It's already happening.

You see, most industries have already crashed. Some of these crashes started happening as far back as February 2021. And when it comes down to it, almost all the industries in the market have already crashed 20% or more within the past year.

He pointed out that biotech was down 47%... retail was down 25%... transportation stocks had crashed 20%... and on and on. He said that a 20% drop in the broader market should be expected.

Mind you, this was before most of the investing world caught on that we were headed into a bear market.

Those who listened to Marc are likely happy they did. He offered up ways to protect your portfolio by sharing exactly what parts of the market to avoid, including specific stocks that his Power Gauge system had squared up as extremely bearish.

One of these companies was the online food-delivery business DoorDash (DASH), which enjoyed skyrocketing popularity during the pandemic. But Marc warned it would soon come crashing back down to Earth. Soon after his warning, DoorDash shares dropped 40%.

Now, Marc is sharing another warning – and an opportunity...

He just went on camera for the second time this year to provide a critical update to his earlier warning, and to shed some light on what you can expect over the next 90 days.

Just like before, he shares the stocks that his system says are doomed in the coming weeks... He's also going to share a big prediction for the rest of 2022 – to help make sure you're not surprised by another major move in U.S. stocks.

This move could create more devasting losses for some investors... But it could also help folks erase the kind of losses and heartache they've felt in the past three months. In fact, there's one group of stocks Marc says could rise 300% to 500% from where they are today.

What we're seeing now isn't a straightforward "everything is down by the same amount" market every day. There are particular stocks that you definitely want to avoid. Just for tuning into Marc's latest video, you'll hear the ticker symbol of one of them.

Click here to hear for all the details.

There's No Easy Way Out

The United States is "facing a reckoning from quantitative easing," noted investor Rick Rule tells our editor-at-large Daniela Cambone. "I have a very difficult time seeing an easy way out of this, with 40 years of low inflation, low interest rates, and economic growth."

Click here to watch this video right now. And to catch all of the shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 7/1/22): Booz Allen Hamilton (BAH) and General Mills (GIS).

In today's mailbag, feedback on Dan Ferris' Friday Digest about how we could be in for a long bear market... and more feedback on Stansberry's Credit Opportunities editor Mike DiBiase's Thursday Digest about inflation... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Wow, Dan. Thanks for trying to destroy a potentially great Fourth of July." – Paid-up subscriber Don T.

"Excellent article about 'inflation = money supply increase.' The recent surge in money supply, according to the article's charts (30% in 2020) and another 10% the following year, follows the Fed's policies and money printing." – Paid-up subscriber Dwight G.

All the best,

Corey McLaughlin
Baltimore, Maryland
July 5, 2022