All This Market Needs Is Some Clarity
Dear subscriber,
Two deep-seated emotions drive market moves: fear and greed.
Oftentimes, when a stock makes a large move (usually to the downside), us finance types joke that the move can be explained by "a change in the present value of the company's cash flow."
You see, we're taught that all investments are worth the value of the cash they'll produce in the future discounted to the present.
But there are clearly times when wild, irrational things happen to stock prices... things that can't be explained by a calculator.
So we see a crazy move, and we joke that there must be some sort of math behind it.
But the truth is that fear and greed drive markets. You fear losing your hard-earned capital... or you succumb to the greed that stems from watching stock prices tick higher and higher, which inevitably drives folks to act irresponsibly.
(Indeed, this investing wisdom is more likely to be learned from a textbook on behavioral psychology than it is from one on accounting.)
Now, in between periods of fear and greed, the market can chug along without too many fireworks. Businesses grow their earnings. Valuations fluctuate a bit. It's not always so emotional in the market.
But the past few weeks tell the story of big emotions... not spreadsheets.
As you can see in the chart below, the market turned fearful at the size of President Donald Trump's tariffs and the real risks that they could lead to a deep recession. The S&P 500 Index plunged more than 10% following "Liberation Day."
Then, when we got even an inkling that there may be tariff relief, the greedy buyers swooped in to make sure they didn't miss what could be a huge rally if the tariff plans stay on pause...
Now we're right about back to where we were before Liberation Day... as if it was all a bad dream.
But today, another emotion is running the market. You could say it's fear's close cousin – and it can be just as hard to deal with...
It's uncertainty.
Nobody knows what's coming next. Not investors. Not business operators.
As we watch earnings roll in, companies are refraining from giving guidance on the future.
Automakers like Stellantis (STLA), General Motors (GM), Mercedes-Benz, and Volvo Cars have all withdrawn their full-year guidance. So have airline operators Delta Air Lines (DAL), American Airlines (AAL), JetBlue Airways (JBLU), and Southwest Airlines (LUV).
This week, shipping company United Parcel Service (UPS) pulled its guidance, too. And UPS CEO Carol Tomé said the word "uncertainty" 22 times during the company's earnings call. That's once every 2.8 minutes.
Overall, the number of earnings calls that have mentioned the word "uncertainty" is up 20% from last quarter.
Companies know that guidance comforts analysts and investors... And we haven't seen them pull guidance like this since the entire global economy shut down during the pandemic.
Before that, companies had never pulled their guidance en masse.
In an interview with Bloomberg Television, Goldman Sachs (GS) CEO David Solomon claimed...
The policy actions to date have raised the level of uncertainty to a degree I do not think is healthy for investment and growth...
As I am talking to CEOs, talking to our clients, they are holding back on investment, and they are certainly tightening their belts.
Like fear, uncertainty risks stalling our economy and our financial markets.
What separates uncertainty from fear is that uncertainty can evaporate immediately... under the right circumstances.
Fear is a deep, biological response. It takes time to get over one's fears. You need to continually see little bits of evidence that prove you're safe – even in the market.
That's no exaggeration, either. The risk of losing money triggers the very same fear response in people today that struck our prehistoric ancestors when they saw a lion on the plains.
But uncertainty is a different emotion. It can be resolved with a simple answer that brings clarity to the future... exactly what folks are looking for today.
Investors are combing through data for answers, largely surrounding the question of whether or not we'll enter a recession.
Really, that all comes down to what happens with tariffs...
If we find out that the threat of tariffs has passed, markets will rip higher. If the 90-day pause puts us right back where we were in April... the market will, at the very least, struggle.
That all leaves investors in a difficult position. Investing today doesn't feel much different than betting on a coin flip or a football game. Your guess as to what's next for tariffs is as good as any.
But when you have a market positioned like this, one in which everything hinges on a single development, the takeaway for investors is actually very clear...
You have to admit your weaknesses and keep to your investment plan. Know that you can't predict what will happen, so work around that and stick to safety and diversification.
Because while we'd like to be able to predict the market's moves, get out ahead of crashes, and "buy the dip"... that's incredibly hard.
And it's not just that markets are random and unpredictable. It's that our emotions set us up to get markets precisely wrong.
Everything in our psychological makeup encourages us to panic sell at market bottoms... and pile in at speculative peaks.
As British investor James Montier, who focuses on the behavioral psychology of investing, explains it...
While [our] survival instincts are quite useful in general, when translated into a modern world, and especially a modern investment world, they make us prone to all sorts of errors.
So what do you do? You stick to your strategy and focus on building wealth over time.
You hold the stocks of high-quality – and often undervalued – businesses that you know will steadily grow, and increase their intrinsic value, year by year.
Montier also says investors should follow what he calls the seven P's... Perfect planning and preparation prevent piss-poor performance.
(Sorry, mom, but it's not as offensive in the original British.)
In other, more polite words, if you invest based on emotion, poor performance is precisely what you'll get.
Now, I very much believe that there are ways you can find an edge in the market much of the time. By paying attention, you'll see that there are long-term trends, industry shifts, innovations, and plenty of opportunities to strengthen your portfolio...
But gambling on the next move in this kind of market is not one of them.
What Our Experts Are Reading and Sharing...
Right now, you can find any number of "Trump's First 100 Days" retrospectives in the media. Most have an axe to grind one way or the other. That's why I like the Financial Times' piece, "The 10 charts that define Donald Trump's tumultuous first 100 days." It's a fair and measured take made just the way I love... with charts and data.
In recent months, when it comes to its AI models' capabilities, OpenAI has pulled ahead of its competitors. But its latest GPT-4o model is... very weird. GPT-4o was highly tuned to give users flattering answers and tell them whatever they wanted to hear, including encouraging pushing over an 80-year-old man. This post from Zvi Mowshowitz covers the AI model and starts with a roundup of wild examples of how it has been used.
Alex Morris is a great fundamental investor and writer, and he recently appeared on the Stansberry Investor Hour podcast for an interview with our very own Dan Ferris and Corey McLaughlin. The trio discusses Morris' new book, Buffett and Munger Unscripted: Three Decades of Investment and Business Insights From the Berkshire Hathaway Shareholder Meetings, and how Morris' investment style has changed over the years. They also dive into the retail space with a look at companies like Five Below (FIVE), Dollar Tree (DLTR), Costco Wholesale (COST), and Walmart (WMT). Be sure to check it out.
New Research in The Stansberry Investor Suite...
In market environments like today, you need to stick to your investing plan.
Prepare, don't predict (as we covered today)... Always follow your stops... Diversify across different assets, industries, and geographies... Buy the stocks of high-quality companies when they trade at great values, and if they have some megatrends working in their favor, all the better.
That last point is important – and it's exactly what Whitney Tilson and the Stansberry's Investment Advisory team are doing this month.
They've found a business that has seen a major surge in demand thanks to the artificial-intelligence boom... though it's not a hot tech stock.
The American manufacturing renaissance will drive its business, as well... but it's not a manufacturer.
Also, this company helps cool increasingly warming environments... though it's not a green-energy play.
Rather, the company the Investment Advisory team is highlighting this month is a leading provider of mechanical, electrical, and plumbing ("MEP") systems. Mostly, it focuses on installing HVAC systems. And business is booming today thanks to several tailwinds... some of which we just mentioned.
The company is looking at so much demand that its backlog for projects has grown 7 times over since 2019. As its chief financial officer recently told investors in an earnings call...
We could double our backlog in the next 105 days if we just started saying yes to more work. We could take a lot of work we couldn't do if our goal was simply to increase our backlog.
That's a great problem to have.
And if you can believe it, a business with that kind of growth and opportunity still trades for a cheaper valuation than the broader stock market.
The team even put out a special notice last week so subscribers could buy shares ahead of this month's issue. Today, they're delivering the full details.
Stansberry Investor Suite subscribers can read the entire report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our special package of research – click here.
Until next week,
Matt Weinschenk
Director of Research
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