Alert: 'Melt Up' Fuel Is Coming

Remember the 'Melt Up'?... It's a simple idea... The Fed is closer to stepping off the brakes... Fuel for future euphoria... The latest on the jobs market... A '2024 Melt Up Blueprint'... You'll know it when you see it...

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Allow us to reintroduce the 'Melt Up'...

Longtime Digest readers need no introduction to the concept of a market "Melt Up." Stansberry Research icon and True Wealth founding editor Steve Sjuggerud popularized the phrase years ago.

But for those who haven't heard of the idea, here's a brief description: It's a period "where it's just a frenzy and everybody is crazy for stocks," as Steve once said. "People at the end of the Melt Up are willing to completely disregard reality."

Consider the dot-com bubble... or the 2008 housing boom. When Steve first started talking about a Melt Up, it was in the wake of the great financial crisis, and the idea was simple. As he said...

My point was that the Fed is going to cut interest rates lower than you can imagine and keep them there longer than you can imagine and that would cause stocks and other assets, like real estate, to soar higher than you can imagine.

A Melt Up results in unimaginable heights for asset prices... and is always followed by a Melt Down where the bubble bursts. Investing during a period like this can lead to big gains but also sets the stage for losses if you own the wrong stocks, especially if you don't recognize the type of market you are part of.

And while the context and details can change, this cycle is consistently driven by policymakers willing to push markets to ridiculous extremes just to keep things moving in the "right" direction... with little or no regard for the consequences.

It happened repeatedly during the longest bull market of all time – which ended in 2020, then quickly picked up again after the pandemic panic bear market that March.

In the second half of 2020 and into 2021, rock-bottom interest rates and trillions of stimulus dollars juiced the stock market and led to other consequences like 40-year-high inflation. Then, only once we faced the prospect of runaway inflation in 2022, higher rates arrived to "fight" higher prices.

Now, two years later, the U.S. central bank appears ready to take its foot off the economic brakes... with the benchmark S&P 500 Index and tech-heavy Nasdaq Composite Index already at new all-time highs... and moving higher for six straight trading days.

The Fed is sending new signals...

As we detailed in last Wednesday's edition ahead of the holiday weekend, Federal Reserve Chair Jerome Powell unofficially told any investors who were paying attention (like us) what we should expect next...

Speaking at an event with other central bankers in Portugal, Powell made the case for rate cuts ahead while also saying he expected the Fed's "official" inflation rate to be somewhere above 2% a year from now. It sure sounds like the Fed is throwing in the towel on higher prices... and is willing to add "Melt Up" fuel to the markets.

Today, Powell sat for regular semiannual testimony for Congress and repeated the tone. And because it was in Washington, D.C., and broadcast on U.S. TV channels, it got more attention when Powell said...

In light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment.

Powell wasn't saying these kinds of things a year ago – when the Fed last hiked rates – or six months ago, or even one month ago. But now the central bankers are getting nervous. Remember, the only thing they fear more than inflation is deflation...

The latest on the jobs market...

Last week, I mentioned we were anticipating a new jobs report about June.

Well, that new "nonfarm payrolls" report came out on Friday, showing the unemployment rate rising higher for the third straight month, to 4.1%. That's up from 3.5% a year ago.

As we wrote about last week, the idea of recession is back on the table, according to the reliable Sahm indicator, at least. This indicator tracks the scale of the rise in the unemployment rate over the previous 12 months. It's a few tenths of a percent from triggering.

The Fed string-pullers are getting nervous... and they appear to be inching closer to lowering the cost of borrowing – which has knock-on effects throughout the economy and markets, more than we'd prefer to see...

The context of the economy is different than it was in the wake of the financial crisis... and amid the panic about the start of the pandemic. But Steve's concept about policymakers doing things to support the economy and juice asset prices is salient today...

Inflation? You and I still might feel it every day when we buy something. But the Fed would rather move on to the next problem it created – a weakening labor market.

After all, as I wrote last week and want to repeat, Powell was asked last Wednesday where he thought the Fed's preferred inflation rate would be a year from now...

"Mid to low twos," he said.

When asked to clarify, he said "between 2% and 2.5%" in the headline personal consumption expenditures ("PCE") index. This number is at 2.6% year over year as of May's reading and has averaged 2.6% since February. That suggests to me that the Fed thinks the inflation "fight" is pretty much over.

So, when the Fed says it has a 2% target, it might mean anything up to 2.999%.

Of course, Powell could be and probably will be wrong. If the Fed cuts rates by the end of the year like the market expects, the pace of "official" inflation could easily pick up again by a year from now. The Fed has successfully gotten all of its predictions wrong in recent years.

But the point is that Powell's commentary and the Fed's general stance – loosening or tightening – can color the backdrop of the present market sentiment. And whether you agree with them or not, this is important to understand when making investments.

Right now, the central bank is pointing investors toward an easier monetary environment with cheaper money and lower interest rates in as soon as a few months.

From here, things could go one of two big ways: Either a recession arrives quicker than many expect (which would likely lead to a hit for stocks)... or the Fed does what it can to preempt one, and a churning-higher bull market we've seen since the second half of 2022 likely keeps going.

In either case, the probable outcome is policymakers stepping in with a "rescue." And we suspect from past behavior – and based on what the Fed is signaling now – it'll act as if 40-year-high inflation just didn't happen. (I'm just the messenger here.)

I can't tell you how much higher the major U.S. stock indexes could go from here... But I'm confident in saying the Fed's desired policy shift sets the stage for a "Melt Up," which we're not experiencing yet despite the exorbitant valuations of some mega-cap stocks already.

You'll know a Melt Up when you see or hear it.

People you haven't talked to in months or years, or even strangers, will suddenly ask you about stocks. They won't hesitate to tell you about the unrealized gains they see in their trading accounts.

Likely, Dave "Davey Day Trader" Portnoy will become greatly popular again. We're not there.

A 'Melt Up Blueprint'...

With this in mind, our flagship Stansberry's Investment Advisory team has just put together brand-new research with much more detail about the Melt Up. That includes their recommendations for how to navigate it and the inevitable Melt Down that will follow.

One is a report from Investment Advisory editor Whitney Tilson and Stansberry Research senior analyst Brett Eversole – who took over from his mentor Steve Sjuggerud as editor of our True Wealth newsletter. Their report is titled "The 2024 Melt Up Blueprint."

In it, you'll find more detail about what makes for a "Melt Up"... learn why Whitney and Brett believe we're still in a "secular" long-term bull market... and get tips for how to successfully navigate today's stock market boom and the euphoric Melt Up stage. As Whitney explains...

In putting together this Melt Up primer, I joined forces with my friend and colleague Brett Eversole. His mentor, Steve Sjuggerud, coined the term Melt Up. And Brett and Steve have researched it extensively.

What they've found is that when a Melt Up forms, it provides some of the greatest, quickest gains of a bull market... if you time your investments correctly.

Now, timing the market isn't easy to do, but Whitney and Brett outline how to position your portfolio accordingly. They explain why "the biggest stocks rarely stay on top" through a Melt Up and Melt Down cycle and share three stocks to buy today. As they say...

It all boils down to this point: You need to focus on the "right" stocks. If you make the wrong investment decisions, you could end up with mediocre returns even as the market soars.

We'll explain how that's possible in this report. And importantly, we'll look at the areas of the market where we'll likely find the biggest stocks of the next market peak.

Safe to say, we'll be tracking "Melt Up" developments ahead, and we'll share updates in the Digest. But in the meantime, Stansberry Alliance members and subscribers to our Investment Advisory can get up to speed with the "2024 Melt Up Blueprint" right here.

A companion report explains how to "get out before the crash," or Melt Down. It's adapted from one Steve initially wrote and published when he was editor of True Wealth. You ought to check that out as well.

And if you don't already subscribe to our Investment Advisory but would like access to these reports – and the team's complete model stock portfolio and monthly issues, e-mailed to you each month, and much more – now is a perfect time.

Click here for more information in a free presentation.

Whitney and Brett share exactly what they want you to know about their outlook...

Just for tuning in, you'll also hear the name of one stock that Brett thinks can jump by hundreds of percent in the next Melt Up. And they also share a risk-free offer for getting started with an Investment Advisory subscription today at a fraction of the typical price – plus a bonus free year of True Wealth.

New 52-week highs (as of 7/8/24): Apple (AAPL), ASML (ASML), Alpha Architect 1-3 Month Box Fund (BOXX), iShares MSCI Emerging Markets ex China Fund (EMXC), Enstar (ESGR), Intercontinental Exchange (ICE), KraneShares MSCI Emerging Markets ex China Index Fund (KEMX), Kinross Gold (KGC), Eli Lilly (LLY), Motorola Solutions (MSI), Nuveen California Quality Municipal Income Fund (NAC), Oracle (ORCL), ProShares Ultra QQQ (QLD), Invesco S&P 500 Equal Weight Technology Fund (RSPT), Skeena Resources (SKE), ProShares Ultra S&P 500 (SSO), Teradyne (TER), and Vanguard S&P 500 Fund (VOO).

In today's mailbag, feedback on yesterday's "midyear checkup" of the markets... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"We're in 'a very strong bull market.'... until we are not.

"Contrarian editors are preaching long term... traders are following trends. Both have their merits... What are you comfortable doing? What do you value? I'm not a trendsetter. I'm a tortoise." – Subscriber Rob C.

All the best,

Corey McLaughlin
Baltimore, Maryland
July 9, 2024