What Both Bulls and Bears Should Do Now

Shutdown averted?... The market is still hoping for a trade deal... But 'Dr. Copper' isn't convinced... Two positive signs for stocks... What both bulls and bears should do now... Don't forget to reserve your spot for tomorrow night...

We'll begin today with the latest news out of Washington...

According to numerous media outlets, U.S. lawmakers have struck a tentative deal to avert another government shutdown ahead of this Friday's deadline. As the Wall Street Journal reported last night...

The top four lawmakers on the House and Senate Appropriations Committees emerged after three closed-door meetings Monday and announced that they had agreed to a framework for all seven spending bills whose funding expires at 12:01 a.m. Saturday.

The deal would include $1.38 billion for 55 miles of modern physical barriers along the border with Mexico, according to congressional aides from both parties.

The deal gives both parties something they had sought. Democrats kept funding for physical barriers along the border far below President Trump's request. But Republicans blocked Democrats' efforts to place certain limits on detention beds, an issue that had derailed the talks over the weekend.

There's just one hitch...

It's not at all clear that President Donald Trump will actually agree to the deal.

After all, he has been adamant about needing at least $5.7 billion to build a border wall. And he has even threatened to declare a national emergency if Congress doesn't grant it.

Nothing we've seen to date suggests that's likely to change. In fact, when asked about the proposal this morning, he stated that "I can't say I'm happy," and indicated he still intended to build the wall as originally planned. "It's all going to happen, where we're going to build a beautiful, big, strong wall," he said.

For now, we remain skeptical. But hey, progress is progress, right?

Of course, we've also been skeptical of a trade deal between the U.S. and China...

Despite repeated reports that the two sides are moving closer to a deal, we continue to believe a legitimate "trade war" resolution is unlikely anytime soon.

But we're not alone. While stocks continue to rally on every rumor and tweet teasing an agreement, one critical market hasn't been swayed...

Longtime Digest readers know copper is one of the most important industrial metals...

It's found in everything from cars and houses to plumbing and cellphones. As a result, it's long been considered one of the world's most important economic indicators. It's also why it is often referred to as "Dr. Copper."

In times of strong economic growth, the demand for copper increases... and prices rise. When the global economy is slowing, demand decreases... and prices fall.

In addition, because China has been the single largest consumer of copper in recent years, it's also a useful gauge of trade-war fears.

As you can see in the following chart, copper prices peaked in early 2018 as the White House announced the first rounds of tariffs on Chinese imports. Then, they rallied to a "lower high" in the spring of that year on news that the two sides were engaged in trade talks, before crashing as tensions rose again through the summer...

Despite numerous positive reports since then, copper remains well below last year's highs. It has continued to make lower highs, and now appears to be rolling over once again.

This is not what we'd expect to see if a real agreement was imminent.

Finally, regular readers know we've been cautious on U.S. stocks as well...

In recent Digests, we've tracked a number of reasons for concern.

These include: slowing global growth... a potential peak in corporate earnings... record-high valuations... widening credit spreads... weakening stock market "technicals"... and a sudden change in Federal Reserve policy, among others.

But none of these concerns guarantee a bear market is underway...

And we've also noted that reasons for optimism still exist.

For one, despite some potential warning signs, most data suggest the U.S. economy remains strong for now. And serious market declines rarely happen without significant economic weakness.

Another is investor sentiment...

As my colleague Alan Gula noted on Friday, we never saw the clear signs of all-out panic that typically occur at major market bottoms. But some sentiment measures have reached extremes that could sustain the bull market awhile longer.

For example, the most recent Bank of America Merrill Lynch Global Fund Manager Survey showed more fund managers say they are now "overweight" cash – that is, holding more cash than usual – than any other time since January 2009...

Likewise, this same survey showed fewer fund managers are now overweight stocks than any time since September 2016...

To be clear, these charts don't tell us exactly what percentage of cash and stocks these managers are holding. But they do suggest most managers are relatively pessimistic about stocks today... And that is often a bullish sign for the market.

Unfortunately, we can't know in advance what will happen...

There is simply no way to know ahead of time whether the bull market will continue, or if a bear market is already underway. So, whether you're currently leaning bullish or bearish, you would be wise to prepare for either outcome.

That means holding some extra cash and gold, and maybe a few "hedges," in case the market moves lower. But it also means keeping a portion of your portfolio in high-quality stocks – and if you can afford to speculate, a few high-growth Melt Up stocks – to benefit if the market moves higher.

In either case, you'll be well-positioned to take advantage of the inevitable opportunities as the market "shows its hand."

We'd also encourage you to join us tomorrow night...

As you've likely heard by now, our friend and colleague Dr. Richard Smith is hosting his 2019 Bull vs. Bear Summit tomorrow, February 13 at 8 p.m. Eastern time.

During this event, you'll hear from several well-known bulls and bears, who will share what they're personally doing with their own money today. No matter your stance on the markets, you're sure to walk away with some valuable new insights.

Again, this event is absolutely free to attend, and there is no obligation. Click here to reserve your spot now.

New 52-week highs (as of 2/11/19): AllianceBernstein (AB), Essex Property Trust (ESS), O'Reilly Automotive (ORLY), Procter & Gamble (PG), Starbucks (SBUX), Spirit AeroSystems (SPR), and Vanguard Real Estate Fund (VNQ).

In today's mailbag, several readers weigh in on our revamped Stansberry Investor Hour podcast, hosted by Extreme Value editor Dan Ferris. As always, send your notes to feedback@stansberryresearch.com.

"Dan, I want to congratulate you on becoming the permanent host of the Investor Hour. You have done a marvelous job since you sat in for Porter and Buck. I look forward to listening to you every week." – Paid-up Stansberry Alliance member Harry G.

"Great news, I love this, I like Dan Ferris already, now he will be the host. I did not like [the political focus of the previous podcast,] that's why I didn't listen much in the past..." – Paid-up subscriber Tom R.

"Just got Dan's note on the podcast changes – no surprise to regular listeners such as myself. Congrats to Dan, I continue to enjoy the weekly program! I'll miss Porter and Buck bantering on topical politics but that was entertaining; the true insight I value remains the other voices and interviews with thoughtful leaders presenting viewpoints either new or worthy of deeper consideration. Keep it going!!" – Paid-up subscriber Edward E.

Regards,

Justin Brill
Baltimore, Maryland
February 12, 2019