What This Powerful Market Force Says to Buy Today
The best call at the March 2020 bottom... When to buy U.S. stocks – and when to buy emerging-market stocks... What this powerful market force says to buy today... A 'one click' way to profit in the months (and perhaps years) ahead...
One powerful market force can show you exactly where to put your money at any given time...
In short, this market force can help you answer an age-old question... Should I keep my money invested at home in the U.S., or should I go overseas to seek better gains?
Specifically, it targets two markets. And it has been extremely accurate at picking the best performer between these two asset classes over the past several decades.
As I (Chris Igou) will explain in today's Digest, knowing how to read this market force correctly is critical... It can mean the difference between hundreds of percent gains or losing money.
Even better, if you see it happening in real time, you can make big gains by putting your money to work in the market that's likely to outperform. And today, I'll share a "one click" way to do just that.
As you'll see, this is the one market force that matters the most between both U.S. stocks and emerging markets. Let's get started...
We can see this market force at work in one of the best periods to own U.S. stocks in history...
Let's say you bought U.S. stocks at the March 2020 market bottom.
Congratulations, you've done really well... The S&P 500 Index soared about 70% in roughly nine months through the end of 2020. That's a massive return for an index that averages 7% per year over the long run.
Pegging a bottom like that is incredibly difficult. And any investor who can say they did that deserves a victory lap.
But while buying into the S&P 500 back then was a great call... it wasn't the best one.
U.S. stocks weren't the best performer during that nine-month period. Emerging markets beat out the S&P 500... The MSCI Emerging Markets Index returned 74% over the same span.
That's right... Despite the tremendous rally, buying U.S. stocks at the 2020 bottom wasn't the best way to position your money for the rest of the year. Emerging-market stocks fared even better.
Our powerful market force explains why...
Put simply, last year, this market force was moving in a direction that helps emerging-market stocks...
In case you haven't figured it out by now, our market force is the U.S. dollar.
Around when the markets bottomed in March 2020, the U.S. dollar started declining...
As regular Digest readers know, the Federal Reserve pumped trillions of dollars into the U.S. economy in early 2020. That meant more dollars were floating around in circulation. And with more dollars in the system, each dollar should be worth less on a relative scale.
That's why the U.S. dollar's value dropped for most of 2020. You can see what I mean in the following chart of the U.S. Dollar Index from March 2020 through the end of the year...
The U.S. Dollar Index fell from 102 to 89 in nine months. That might not seem like a huge move, but a double-digit percentage drop in a global currency is a big deal – especially in such a short span.
On the flip side, the move was great for emerging markets. Here's why...
Emerging-market companies typically borrow in U.S. dollars. Their debt is often denominated in U.S. currency.
So when the U.S. dollar's value declines, these companies have an easier time borrowing... And the debt that they already have on the books falls as well.
This is great news for companies in emerging markets... The businesses they run get better as the U.S. dollar falls.
That's a big reason why this group of stocks did so well last year.
This isn't a new relationship between the U.S. dollar and the performance of stocks, either...
The dollar's connection to U.S. and emerging-market stocks goes back decades.
When the dollar falls, emerging markets do well. The opposite is also true... When the dollar rises, U.S. stocks tend to crush emerging-market stocks.
Let's use the late 1990s as another example to see how that side of the trade can play out...
From 1995 through 2000, the U.S. dollar was in a rapid uptrend. It was strengthening alongside the U.S. economy. You definitely wanted to own U.S. stocks back then...
The S&P 500 soared roughly 200% in less than five years. Meanwhile, emerging-market stocks were actually down over the same period. Check it out...
You can see how powerful a rising or falling U.S. dollar can be for these asset classes...
Again, if the trend in the dollar is up, U.S. stocks typically outperform emerging-market stocks. That's what we saw in the late 1990s.
But the U.S. dollar has a strong history of multiyear booms followed by declines. And if the value of the U.S. dollar falls, emerging markets are the clear outperformer...
That's exactly what happened in the early 2000s...
After the dot-com bust, markets recovered across the globe – including here in the U.S.
The S&P 500 entered into a multiyear bull market from 2002 through late 2007. But there was one big difference during this time period... The U.S. dollar was weakening.
So while owning U.S. stocks led to solid gains for investors, emerging-market stocks blew the S&P 500 out of the water...
U.S. stocks gained a little more than 100% from mid-2002 into late 2007. But that was no match for emerging-market stocks, which returned almost 400% in that span...
It wasn't a contest between these two asset classes... Your money would've been much better off in a broad basket of emerging-market stocks from mid-2002 into late 2007.
You can see by now that the U.S. dollar goes through cycles like this over and over again throughout history. And if you can spot these trends in real time, you can get a sense of which market will outperform the other in the coming months (and perhaps years)...
I'm showing you all of this because this relationship holds true today...
Plus, this market force experienced a major turning point at the start of this year. And it could have great implications for both of these markets in the months ahead...
I showed you earlier how emerging markets beat U.S. stocks through the end of 2020. After that, the U.S. dollar bottomed in early January before taking off higher once again...
When the U.S. dollar turned higher, it started to show up in market performance yet again. Emerging-market stocks were no longer the clear winner.
Since the U.S. dollar's recent low on January 5, U.S. stocks have been leading the way. Take a look...
The S&P 500 is up 18% since January 5. And emerging-market stocks are actually down 3% over the same period.
In other words, U.S. stocks are back in the driver's seat again today. But that's not all... This outperformance should continue for months – or perhaps even years.
As I said, the U.S. dollar bottomed in January. That means the current trend has been happening for less than a year. Even more, the dollar just hit a new 52-week high in late September.
So if the recent uptrend is any indication, a new boom in the U.S. dollar is now underway. And it can last much longer from here...
If you look back over the past several decades, you'll see that bull markets in the U.S. dollar tend to last for years...
Take the late 1990s rally, for example... The dollar boomed for five straight years. The U.S. Dollar Index went from 80 in April 1995 to 118 in October 2000. That's a 48% jump.
The dollar also rallied for five straight years from mid-2011 through late 2016. It was another lengthy boom during which the U.S. dollar's value soared 42%.
If anything like the U.S. dollar's yearslong bull runs of the past is coming again, it means this move is just getting started. And the bottom line is...
Your money is better off in U.S. stocks than emerging-market stocks today.
So if you're looking to go value hunting in emerging markets right now, history suggests you should reconsider. You want to own U.S. stocks instead as the dollar's value rises.
A simple way to do that is through the ProShares Ultra S&P 500 Fund (SSO)...
SSO is a "twice leveraged" fund. That means it's designed to produce twice the daily return of the S&P 500. So if the broad market rallies 1% in a day, SSO will jump 2%.
With the U.S. dollar's value rising, if U.S. stocks take off and outperform emerging-market stocks in the coming months, SSO will juice your upside potential.
However, it's important to know that this kind of leverage cuts both ways... If the broad market falls 1% in a day, SSO will fall 2%. So before you consider making this trade, please make sure you're comfortable with this extra risk before you buy SSO shares.
In short, thanks to this market force, we know when to put our money in U.S. stocks or emerging-market stocks.
When the dollar is falling, emerging-market stocks are the better bet. But today, it's the opposite scenario... U.S. stocks will likely soar alongside the value of the dollar in the months ahead.
Don't get caught on the sidelines when it happens.
Our Biggest Event of the Year Is Almost Here
Our annual Stansberry Conference in Las Vegas is fast approaching...
Like everything else in the world, the COVID-19 pandemic forced us to "go virtual" in 2020.
Fortunately, this year, we're returning to an in-person gathering at the luxurious Encore at Wynn Las Vegas... The event will begin on Monday, October 25.
As longtime subscribers know, the Stansberry Conference is a gathering of some of the brightest minds in financial research and beyond...
During this year's event, you'll hear from your favorite Stansberry Research editors – like Steve Sjuggerud, Dan Ferris, Dave Lashmet, and more. And of course, we also welcome special guests from outside our business as well. This year, our all-star lineup includes...
- Mohamed A. El-Erian: He's the chief economic adviser at Allianz and former CEO of PIMCO. Money magazine calls him "one of the smartest investors on the planet." And he was named to Foreign Policy magazine's list of Top 100 Global Thinkers for four years in a row.
- John Tamny: He's the editor of RealClearMarkets, a spin-off of the policy website RealClearPolitics. Tamny also wrote The End of Work, which shows the amazing evolution of jobs. He believes the "end of work" is near. In other words, you won't want to miss his talk.
- Jaime Rogozinski: You might recognize him as the founder of WallStreetBets, an online community that has tried to take down the world's top hedge funds. The story was featured on MarketWatch, Bloomberg, CNBC, and everywhere else in the financial media. But you won't believe what he has planned next.
We know a lot of folks are simply too busy to travel all the way to Las Vegas to join us. That's OK... With an online All Access Pass, you can still be "in the room" for everything.
For a small fraction of the cost of an in-person ticket, you can watch the entire conference live from the comfort of your own living room or office. Plus, everyone who claims an online All Access Pass today will receive a bonus gift valued at $500. Get started right here.
New 52-week highs (as of 10/12/21): Brown & Brown (BRO), Formula One Group (FWONA), Cheniere Energy (LNG), Cloudflare (NET), Palo Alto Networks (PANW), Royal Dutch Shell (RDS-B), VanEck Vectors Russia Fund (RSX), Tata Motors (TTM), and Viper Energy Partners (VNOM).
In today's mailbag, a Stansberry Alliance partner shares why he's going back to work. What's on your mind? As always, you can e-mail us at feedback@stansberryresearch.com.
"I am semi-retired at 68. My old employer gave me a call to come back to work. I decided to go back to work, to help reduce the supply-chain bottleneck, for 20 or so hours a week. I have an interview scheduled for next week, we'll see what happens there. I'll be able to put my skills back in play, help this country in manufacturing and oilfield production, so 'why not?'" – Stansberry Alliance member Jerry F.
Good investing,
Chris Igou,
Jacksonville, Florida
October 13, 2021