A Revolt in Russia? 'Whatever,' Says the Stock Market

A revolt in Russia? 'Whatever,' says the stock market... What the muted market reaction suggests... There is no fear right now... The scenarios to consider... Dow 50,000?... A radical change in banking is imminent...

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If a revolt in Russia won't move the markets, what will?...

We've talked this year about stocks climbing the proverbial "wall of worry." That means prices have been rising despite various risks in the market that people might expect would cause them to fall instead.

Typically, when this happens, it's a bullish sign – and it's bullish itself. Stock prices rising despite "bad news" can mean that maybe the "worst news" of the near term, at least as far as the market is concerned, is behind it.

I (Corey McLaughlin) couldn't help but think of this idea again today...

Here we are, roughly 48 hours after it looked like an angry and armed band of formerly pro-Russia mercenaries was 125 miles from Moscow, having already taken control of a large southern city and energy hub near Ukraine. They had ideas on confronting President Vladimir Putin, or his military leadership, or who knows what else.

And the stock market shrugs it off – not moving substantially higher or lower? Yep.

For a while, like last year, it seemed any bit of news – good or bad – was made into a reason for the stock market advancing or declining. The market was volatile. Today and in recent months, not so much.

The U.S. benchmark S&P 500 Index barely moved today. And aside from the energy and real estate sectors rising 2%, there wasn't much activity.

Maybe there's no reason to be concerned...

This mercenary revolt from billionaire entrepreneur Yevgeny Prigozhin's Wagner Group – which had been fighting for Russia in Ukraine until a few days ago – suddenly faded away, at least for now. If it was still going on or had ended differently, the consequences would have been greater. We would have seen at least some volatility in the markets.

Oil futures spiked in price over the weekend... But by today, prices for Brent crude oil, the international benchmark, were the same as they were on Friday. The Wagner rebellion ended rather quickly with a (suspicious) agreement from Putin to exile Prigozhin and his troops to Belarus – Russia's ally and neighbor – and potential fireworks in Moscow didn't happen, so perhaps it's all a non-story.

Or maybe the sleepy reaction is just a result of timing... This brief revolt happened over a summer weekend when Wall Streeters are more likely to be imbibing in the Hamptons than weighing risk-reward bets at their desks in Manhattan or home offices.

Or maybe the lack of volatility is because Western corporations and investment firms have been largely out of doing business with Russia for over a year. With Russia frozen out of the global economy – or at least the Western economy – even these startling events have little impact on Western companies' bottom lines.

And maybe after a year-plus this war without resolution, folks in the West have resigned to the current state of play – U.S. and European allies sending a lot of money and weapons to Ukrainian soldiers, who do the fighting on the ground against the Russians.

There's probably something to each of those arguments, but we can never know for sure. Mr. Market is an emotional, wild beast with seemingly infinite variables whose next move is difficult to predict.

But a nonchalant market response today to a literal revolt in Russian territory – in addition to market action the past several months – tells us something definitive about market sentiment right now...

Regardless of events or the 'news,' there is little fear among investors...

Take a look at the market's "fear gauge" – the CBOE Volatility Index, or VIX. The VIX was up a little today, but it still remains close to 14. That's its lowest level since early February 2020, before the first reports of the "novel coronavirus" in China.

As Stansberry Research senior partner Dr. David "Doc" Eifrig showed just on Friday in his Retirement Trader service, the VIX has been in a downtrend over the past year. And the index – which represents the implied volatility of the S&P 500 based on options activity – has been cut in half since mid-March...

The timeline of this fall in volatility coincides with a 12% rally in the S&P 500 from its last near-term low in March.

Based on this surface-level observation, one could say the "high volatility" era of the past three years is toast for the moment. That's interesting given the "fear" we still hear among a lot of analysts in the mainstream financial media... and the realities of still high inflation, an ongoing major war, and plenty of other risks.

I won't make blanket statements off one indicator, especially when there's debate in financial circles about how truly representative of sentiment the VIX actually is. But it can be used as part of the "mosaic approach" to analyzing the market, as Empire Financial Research's Enrique Abeyta described on a recent Stansberry Investor Hour podcast.

You could make a few things of these observations...

First, when there's "no fear," it's a sign that perhaps folks are getting overconfident and the major U.S. indexes are due for a breather. We saw a little bit of that toward the end of last week, but the major indexes are still trading above their short- and long-term technical trends, which we like to define as the 50-day and 200-day moving averages.

So perhaps some rougher seas are on the horizon in the short term should stocks pull back toward those averages. And looking further out, a recession isn't off the table by any means.

Remember that the yield curve remains inverted... a pretty darn reliable indicator of recession ahead. The 2-year/10-year Treasury spread had fallen back lower to almost negative 1%, right about where it was before March's bank crisis.

That'll get a guy's attention.

At the same time, though, there is a case to be made for smoother sailing ahead...

No doubt mega-cap tech stocks have led the market higher in 2023, much to a lot of folks' surprise. But market breadth – the number of stocks going higher versus lower – isn't too hot or too cold. It's in the middle. Today, 55% of S&P 500 stocks traded above their 200-day moving averages... And now volatility has cooled, too.

You could take this market-breadth argument one of two ways...

Either roughly half of U.S. stocks can still get into an uptrend from here – meaning more upside for the broader market ahead – or half can get into a downtrend, meaning more downside.

Whichever of those outcomes happens, that's less risk than, say, 2021... when nearly every stock on the New York Stock Exchange was trading above its long-term technical trend.

But here's another part of the mosaic... I was expecting more volatility earlier this month when the Federal Reserve clearly showed that it expects to hike its benchmark interest rate two more times, higher than its previous projection just a few months ago.

But the market has so far largely shrugged off that development, too. What gives?

Here's an important nuance about market sentiment...

Many of our analysts also like to gauge sentiment by tracking the weekly survey of the American Association of Individual Investors ("AAII") sentiment survey.

The group sends out a question to members each week... It asks investors which direction they think the market will move over the next six months.

Folks answer "bullish," "bearish," or "neutral." And by gathering the data, the AAII can see how its investment crowd is feeling about the current market. As our colleague and DailyWealth Trader editor Chris Igou wrote last week...

Since the start of 2022, the percentage of bullish respondents has mostly been below 30%. And it has dropped below 20% in several cases.

That changed this month. The percentage of members who answered "bullish" rose to 45%. That's the highest we've seen since 2021. Check it out...

Folks are starting to catch on to today's S&P 500 rally. After all, the index is up more than 20% since its bottom in October 2022.

That kind of eight-month rally doesn't go unnoticed. And it's convincing people that the current rally can sustain itself.

Longtime readers know we like to avoid the crowd. Shouldn't this tell us to be bearish? But as Chris pointed out, the timing and circumstances of this particular bullish spike – hitting its highest level in a year – suggests higher returns for the S&P 500 ahead.

You may remember, on the way down last year, this same survey kept coming up bearish as stocks kept falling and falling and falling. The same can be true on the way up after a sea change in sentiment. There is nuance to consider, as Chris wrote...

We tested each time the AAII's bullish reading hit its highest level in a year. And we looked at what happened to the S&P 500 after similar cases. What we found might surprise you...

Since 2000, similar cases have led to gains over the next year 79% of the time. And the performance is impressive...

Buying after the bullish sentiment reading hit a one-year high led to a 2% gain in three months. It gets even better looking at the 6.5% gain in six months and the 9.2% gain over a year.

Chris also noted sentiment is also nowhere near extreme bullish levels, based on past history of the survey. His DailyWealth Trader system remains in "buy" mode, and based on his analysis, 10% gains over the next 12 months aren't out of the question.

Another bullish case...

Our Ten Stock Trader editor Greg Diamond is among those in the camp who believe the bear market has been over for a while – he said it was last October – and that higher highs for the indexes are ahead. As Greg wrote in his Weekly Market Outlook today...

I'm amazed by just how many investors are still bearish right now. Not many folks are ready to believe the bear market has been over for quite some time.

You can even feel the bearish sentiment in the air. I can't remember a time where the majority of folks were calling for a recession, a crash, or some combination of the two, every week.

At this point, it would have to be the most obvious recession in stock market history, since "everyone" sees it coming. But of course, that's not how the market works.

Usually, if everyone is expecting something to happen one way, the likelihood that it actually does is slim. But as traders, we can use this sentiment to our advantage.

Greg then ran through shares charts of stock market rallies following the crash of 1987, the dot-com burst, and the brief bear market at the onset of the pandemic in March 2020, and made the case for a similar run to happen now.

He thinks the Dow Jones Industrial Average could hit new highs at 50,000 or higher soon. That would be nearly a 50% gain from today.

If 'no recession'...

In fairness to his paying subscribers, I can't give away all the details Greg used to reach this conclusion. But he explained a general point I believe is worth passing along today, especially given our "recession or not" discussion lately.

Greg wrote to Ten Stock Trader subscribers about his latest prediction...

I'm basing it off the fact that last year was the recession and a small correction within a much larger uptrend since the 1987 low.

And if we combine some stocks and indexes that bottomed late last year with many others bottoming out earlier this year, we can say the bear market ended.

Some stocks have already surpassed the highs from 2021/2022, so new highs should be on the way for the Dow and many indexes as well.

Existing Ten Stock Trader subscribers and Stansberry Alliance members can find all the details and follow Greg's work here, which we recommend. He called "the top" in early 2022 nearly to the day... and was one of the long folks to say October marked a bottom, too.

We're not saying it's time for everyone to go "all in" on stocks. As always, consider your goals and time horizon. But if you have cash to put to work and find that one of our editors' or analysts' recommendations fits with your allocation strategy, don't be afraid to go for it.

Greg and Chris are eyeing up trades in their daily services, and high-quality stocks that have a proven track record of rewarding shareholders over various financial conditions are still a friend of a core portfolio.

Finally, one more (important) thing...

You may have seen a few e-mails about this over the weekend, including in our Masters Series, but I want to make sure everyone gets a chance to hear about our Crypto Capital editor Eric Wade's new timely, provocative presentation...

As Eric has been explaining, in just a few days, the Federal Reserve has plans to go live with a "digital dollar" platform that will remake the entire U.S. banking system. Called "FedNow," this system will be available to 10,000 different banks and be used by the Treasury Department, the Social Security Administration, and many other programs.

This digital platform will be breaking news for many people, but not for Eric and his Crypto Capital team. Eric has spent four years investigating FedNow, including onsite visits with pioneers of this digital-currency system that was recently approved by the International Monetary Fund.

On the eve of this radical change in banking and the dollar "going digital," Eric is sharing what he has learned. The biggest innovation for the dollar in 50 years, as he says, is going to change everything about how anyone with a bank account can make and receive payments.

This development brings with it potentially wide-ranging consequences... from privacy concerns to massive opportunities to make money if you know where to look... One place is an area of the cryptocurrency industry, which – perhaps counterintuitively – could get a massive boost from the Fed launching its own digital currency.

Eric explains all the details about this imminent change to the U.S. banking system – and shares a free recommendation to best position yourself ahead of it – in this brand-new presentation. Click here to watch it now.

New 52-week highs (as of 6/23/23): D.R. Horton (DHI), Dice Therapeutics (DICE), iShares U.S. Home Construction Fund (ITB), Lennar (LEN), Eli Lilly (LLY), Meta Platforms (META), McCormick (MKC), NVR (NVR), PulteGroup (PHM), and Vericel (VCEL).

In today's mailbag, continued discussion on fighting inflation and thoughts on Dan's Friday essay, which featured the idea of a throwdown between Tesla CEO Elon Musk and Meta Platforms' Mark Zuckerberg... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Reply to Geoff B. [in Friday's mailbag]: Maybe the best way to fight inflation (instead of the Fed raising interest rates) is to band consumers together and just refuse to pay the new and improved price. If enough people stop paying the new inflated price maybe the seller will get the message and he/she will refuse to pay his supplier's new inflated prices. It will create a reverse-engineering of the price structure and bring down this crazy cycle of inflation. Just sayin'." – Paid-up subscriber John M.

"Dan, Great essay! I don't follow wrestling or martial arts, but I would definitely pay to watch Musk vs Zuckerberg. I have a few questions. In the weeks leading up to the match, will the number one hit be the Beatles' 'I am the Walrus'? Will Musk lose because he can't stop laughing at Zuckerberg's goofy haircut? And finally, how did ChatGPT find out that you secretly recommend buying renewable-energy technologies?? LOL.

"Thank you for all the humor and great advice! I feel so much more confident with my investments since following Stansberry Research!!!!" – Paid-up subscriber Larry N.

All the best,

Corey McLaughlin
Baltimore, Maryland
June 26, 2023