The World Is Still Hooked on 'Old' Money and Oil
A mid-year checkup... A year for value... 'Hated' bank and energy stocks are the leaders... The world is still hooked on 'old' money and oil... How to profit from the 'ignored commodity boom'...
We'll begin today with a 'mid-year' checkup...
Today ends the first half of 2021... a natural stopping point to catch our breath, zoom out from the daily market noise, and look at what's actually happened in the markets through the first six months...
When we do this today, we see that the benchmark S&P 500 Index is up 16% since January 1 and resting on an all-time high.
The tech-heavy Nasdaq Composite Index hit a new high yesterday and is up 14% in 2021, the same number the good ole' Dow Jones Industrial Average has gained this year. Everything is going up, up, up...
Or so it seems... But take a look under the hood and you'll see that certain sectors have outperformed others – and carried these major indexes higher...
And these leaders of 2021 might surprise you...
As I (Corey McLaughlin) will explain today, many of these leading stocks are from sectors that have been "hated" for years – or decades even... but this year have enjoyed plenty of tailwinds that are not easing anytime soon.
This presents a buying opportunity for smart investors...
But first, let's set the stage by looking at the last six months in a little more detail...
This year, not everything has gone up in a straight line...
As Stansberry Research analyst Jacob Abrams wrote recently in our American Moonshots quarterly update... so far this year, the market has been rotating away from high-flying growth stocks and into boring "value" stocks.
As Jacob pointed out in his June 25 update, nowhere is this clearer than in small-cap stocks, which you'll find in the Moonshots model portfolio...
The past three months especially have been choppy as the market digests a host of macroeconomic variables, like rising yields, inflation risks, COVID-19 uncertainty, and political gridlock. This has only accelerated Mr. Market's appetite for value, as investors have sought these "safer" names in the face of rising uncertainty.
From a technical standpoint, there was a clear "divergence" between value and growth stocks for a few weeks in late February and early March, and since then value has been the least volatile of the two groups as both have churned higher...
Real concerns about inflation have been the big theme of the year...
Ahead of key central bank meetings, Wall Street speculation about higher interest rates and asset tapering has dominated conversation – and led to sell-offs in growth stocks since those companies are thought to be more sensitive to tighter monetary policies.
Whether that is true is an entirely different story, as our Stansberry NewsWire editor C. Scott Garliss likes to say.
In any case, the Fed has done what Chair Jerome Powell has said it would do since March 2020... It has kept the "Melt Up" going...
The central bank has kept dollars cheap and has kept lending to itself at near-zero rates. All the while it continues to discount present inflation as "transitory" during what will be a long pandemic recovery...
Of course, real-world inflation – higher prices at the gas pump, grocery store, and lumberyard – hit everyday folks in a very real way...
CEOs in various industries don't see global supply chains getting back to "normal" until later next year or even 2023...
We're talking about everything from microchips to tourism...
And until then, the Fed promises to stay pat with its monetary policy, which like it or not, drives stock prices, home prices, and all other asset prices...
Some of the most 'hated' stocks have had the highest returns this year...
There are a bunch we could talk about, but here are three to drive home the point...
Shares of investment bank Goldman Sachs (GS) are up more than 40% in 2021... JPMorgan Chase (JPM) is up around 20%... and oil company Chevron (CVX) is up 23%...
Yep, that's financials and "old" energy stocks leading the way...
The world might feel like it's turning completely digital and be on its way to "going green," but – no one wants to admit it – investors are still in love with old money and oil.
We've pointed out the bullish case for financials and energy stocks over the last six months... not that we necessarily love the reasons why.
Bank stocks, we said back in the December 21, 2020, Digest, had gotten the green light from the Fed to start share buybacks again, which would boost its share prices...
In that Digest, we also pointed out that our colleague Dr. Steve Sjuggerud recommended a certain segment of the banking sector months earlier to his True Wealth subscribers. He did this at a time when they were really, really "hated"...
And in March of this year, we noted that the big banks would actually be short-term beneficiaries of higher inflation... given that they make their money by borrowing at short-term interest rates and then lending at long-term rates...
As we wrote in the March 22 Digest, entrenched and unchanging Fed policy meant greater net interest margin and higher earnings for the banks...
We don't like it, but higher inflation – by definition higher prices created from money made out of the thin air – helps the whole banking system.
The SPDR S&P Bank Fund (KBE), a basket of big bank stocks, is up 25% year-to-date.
It's a similar story for energy stocks, or any commodity companies...
If 2020 was a year for the "digital economy," 2021 has been the year that the "old economy" makes a comeback...
Everyone needs workers... New homes need lumber... Kids need diapers (a paper product)... Cars need gasoline (meaning oil)... You don't get older industries than these.
You want to know how important oil still is? President Joe Biden is suggesting using it to pay for infrastructure spending. As NewsWire analyst Nick Koziol reported on Friday...
According to a report from Reuters, the government is looking to fund part of its $1 trillion infrastructure agreement through a sale of crude oil from its Strategic Petroleum Reserve ("SPR"). The government could sell up to $6 billion worth of crude, Reuters said, citing a document circulated by government officials.
If this happens, it could put pressure on oil prices and add to oversupply fears, but for now oil appears to be headed higher, with West Texas Intermediate (WTI) already trading above $73... its highest level since early 2018.
In sum, the prices of "real things" have been going higher to make up the gaps between supply and demand... stemming, one way or another, from the pandemic.
And shares of companies tied to the value of these 'things' have been taking off...
For instance, the Energy Select Sector SPDR Fund (XLE), the largest U.S.-traded energy exchange-traded fund, is up 42% since the start of 2021. The narrower SPDR Oil & Gas Exploration & Production Fund is up a whopping 65% since January 1.
In the June issue of Steve's True Wealth newsletter, senior analyst Brett Eversole pointed out this trend with a broader commodities index...
What has happened over the last year is nothing short of incredible...
Call it inflation... reflation... or just massive demand. Whatever you call it, commodity prices are rallying in a way we haven't seen in well over a decade.
What's important, Brett wrote, is that this kind of commodity rally is rarely isolated or short-lived. It doesn't happen for a year and then fizzle out. Instead, it tends to kick off a massive commodity boom like the one we saw in the early 2000s.
When commodities take off, they really take off...
Commodities bottomed out in 2002... and went on to soar 172% over the next six years.
And Brett says there is potential to improve exponentially on those eye-popping returns from a standard basket of commodity stocks...
As Brett wrote in June's True Wealth...
By making a slightly different trade, you could have more than tripled that return. Take a look...
The Bloomberg Commodity Index nearly tripled in four years. It was a darn good time to be an investor. But this "smart" commodity investment returned nearly 600% over the same period.
Even better, during the down times for commodities before and after the last commodity boom, this index still racked up quadruple-digit gains. As Brett wrote...
This is the way to own commodities when a boom is taking place. Heck, it's the only way to directly own commodities, as far as I'm concerned.
You're probably wondering what this "smart" index is. In fairness to paying True Wealth subscribers, I can't give away the ticker here in the Digest, but I urge existing subscribers to check out last month's issue if you haven't already.
And if you don't subscribe to Steve's excellent True Wealth newsletter, click here to learn how to get started...
You'll see all the details about Brett's investment idea and another commodity play from Chris Igou, another True Wealth analyst, as well as Steve's big-picture thoughts on this "ignored commodity boom"... and his investment philosophy in general.
It's how Steve and his team continue to nail long bullish trends way before most people even notice them... I mean, if you know anyone else who had banks and energy stocks on your 2021 bingo card, send us a screenshot, we'd like to see the evidence...
As Steve always tells his subscribers – the trend is your friend...
And the trend can last much longer than you probably think. As Steve wrote in the June issue of True Wealth...
To get in early as an investor, you have to be bold and buy what nobody else is willing to buy. You have to "hold your nose and buy," so to speak. The best opportunities are when you can buy a hated investment soon after the uptrend has just begun... And then you have to ride that uptrend – as long as you can.
That's it. That's the formula.
To this point, a good first half of the year in the market generally bodes well for the overall year. For example, since 1950, the S&P 500 has never finished the year with a decline after gaining double digits through the first six months of that year.
We strongly emphasize the word "generally," though... That's a big qualifier. Every year is different, as 2020 just proved. And regular Digest readers know that Steve has called for a "Melt Down" in stocks to arrive possibly by the end of the year.
He has a plan for how to protect subscribers in that scenario.
But he has also said that you won't want to leave Melt Up gains on the table. Those are happening today in several sectors that Steve and his team have identified and still believe have the potential for huge gains.
Other editors on our team see a similar bullish case for gold brewing today...
We can't tell you exactly what to do with your money. Your situation is your situation, but if you're looking to put new money to work today, it pays to listen to what smart, experienced folks like Steve and his research team have to say.
Again, existing True Wealth subscribers should check out their latest issue now. And if you want to hop on board with Steve's team, you can click right here to learn more about how to start a subscription today.
New 52-week highs (as of 6/29/21): Analog Devices (ADI), American Tower (AMT), Asana (ASAN), Costco Wholesale (COST), Cintas (CTAS), Dropbox (DBX), DocuSign (DOCU), Expeditors International of Washington (EXPD), inTEST (INTT), Intuit (INTU), Microsoft (MSFT), Motorola Solutions (MSI), Cloudflare (NET), Intellia Therapeutics (NTLA), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), Smith & Wesson Brands (SWBI), ProShares Ultra Semiconductors Fund (USD), and Zebra Technologies (ZBRA).
In today's mailbag, a few thoughts on Steve's "Melt Up" thesis... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"A few weeks back Steve said something that had a strong ring of truth for me. He said first we would have inflation followed by interest-rate hikes to control the inflation and the rate hikes would be the pin that bursts the Melt Up. Rapidly rising inflation was at least partially acknowledged a couple of weeks ago by the Fed... finally! At the same time, they said they would maintain low interest rates.
"However, can we really trust anything that comes out of the Washington Swamp? I don't. So one day, perhaps by the end of 2021, we will all wake up to the Melt Down simply because the Washington crowd decided to raise interest rates to fight inflation. I don't think there will be any warning. A rise in interest rates has been justified since the recovery from the COVID-19 began.
"Nobody, not even people with the sophisticated tools that Stansberry Research uses, can possibly predict or time the coming collapse because it is being driven by impulsive human political behaviors that do not have the interests of the citizens at heart.
"We are not dealing with socialism. We are dealing with Central Party Communism in Washington and the relatively small group of power brokers only intend to take care of themselves. Their motives are to gain personal wealth and power at any cost... Chaos and damaging as many people as possible to make them dependent on the Central Party drives the behaviors that will lead to the Melt Down caused by interest rate hikes.
"So those of us that have investments in the stock market are simply rolling the dice. We are betting and hoping we get most of our investments closed out with gains before the Melt Up crashes." – Paid-up subscriber Michael U.
All the best,
Corey McLaughlin
Baltimore, Maryland
June 30, 2021