Always Know Your Time Horizon

The market is on fire... What a Fed 'pause' could mean... The bullish long-term case for stocks... Always know your time horizon... A potential short-term risk... No matter what happens next, think about this...

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The market has started 2023 on a heater...

There's really no argument to be had. The numbers speak for themselves...

Last month, the tech-heavy Nasdaq Composite Index was up nearly 11%, its best January performance since 2001... the benchmark S&P 500 Index was up over 6%, its best January in four years... and the Dow Jones Industrial Average, which had been outperforming, was the lagging major U.S. index but still rose 3%.

As our colleague and DailyWealth Trader editor Chris Igou described in his monthly checkup published yesterday...

This is a very "risk on" sign from investors. It's a big change from late 2022, when tech stocks were hitting new lows while the overall market wasn't.

This description might make it sound like the good ol' days of the last bull market: tech stocks for the win. (Or, more specifically, the last cyclical bull market... Our colleague Brett Eversole described the important distinction earlier this week.)

But as I (Corey McLaughlin) will get into today, while there are certainly reasons to get bullish heading into 2023, potential risks remain ahead.

The good news is that no matter who or what ends up being "right," one question can lead you to make the correct decision about any investment – now or anytime.

The mainstream narratives today are focused on an impending Fed 'pause'...

As we reported yesterday, the Federal Reserve raised its benchmark lending rate by another 25 basis points as it decelerates on its economic "tightening" to fight inflation. This was largely expected and makes sense...

The pace of inflation has largely been coming down in the U.S. since June, while the unemployment rate has stuck at record lows.

In "Fed world," where they literally have two publicly stated jobs – "stable prices and maximum employment" – it's easy to see why the "pause" in rate hikes might come as soon as the Fed's next policy meeting in March.

The markets have liked this... and Fed chair Jerome Powell poured fuel on the fire yesterday with a few comments he made in a post-policy announcement press conference. He had several chances to indicate he thought the market was getting it wrong, but he declined.

Among other things, he said that "our focus is not on short-term moves" and "market participants have a very different job" than the Federal Reserve.

If the Fed is indeed going to 'pause,' there are reasons to get bullish...

Longtime Stansberry Research editor Dr. Steve Sjuggerud talked about this during his new video presentation on Tuesday night. As he said...

Guess what? The Fed's plan is actually working. The inflation rate has dropped every month since August. And if the trend continues, it'll be below the Fed's target of 2% by May.

That means the worst-case scenario of never-ending rate hikes is likely off the table... and that alone has already pushed the S&P up around 12% since October. So clearly, it's time for investors to start paying attention again.

Plus, the stock market has historically risen in the year or two after the U.S. central bank stops raising interest rates. Take a look at this chart...

From 1984 to 1986, the S&P 500 was up an incredible 78%... from 1995 to 1997, the U.S. benchmark skyrocketed 62%... and from 2018 to 2020, stocks were up 55%. Importantly, three of these periods also occurred with recessions – after rates peaked in 1981, 1989, and 2000.

In two of those instances, stocks were up two years later, though there's a notable exception when stocks were down amid the bursting of the tech bubble.

Maybe the most apt comparison involves the period from 1981 to 1983, following another stretch of rate hikes to crush inflation. Stocks shot up 37% over the two years that followed, though that includes an 11% decline in the first year after rates peaked.

This is a critical note for a few reasons... One, it might be the most relevant comparison to what could happen over the next year or two. Second, it brings up a crucial point and timeless investing lesson...

It's about your 'time horizon'...

We kind of breeze over this point too often, so I want to go a little deeper today.

You'll often hear investments described as "long term" or "short term" opportunities.

It's an idea that's easy to say but harder to put into practice. That's why – if you can figure out what it means and how it works for you – it's so valuable...

Long and short term can mean different durations to different people. But the definitions don't really matter...

The important thing to think about – with every investment – is how long the time horizon is for you. It's why when you get a recommendation from our editors, it has a time horizon attached to it (either explicitly in the recommendation or implicitly in the nature of the publication where it's recommended). But most people don't think about this, or they forget it...

When you buy a stock or put money into anything, is this money you are thinking will grow over the next six months, six years, or six decades? Or is it for a trade over the next six weeks?

No less important... does your time horizon match your investment or trade? And, related, what's your goal for it? Considering these questions can make investing a lot simpler for you... and help you sleep better at night.

In the latest episode of our Stansberry Investor Hour podcast, professional money manager Cullen Roche shared this advice in response to Dan Ferris' final request for a single idea to leave listeners with...

When you can introduce the aspect of time, you're kind of solving for the last big problem in portfolio management...

When you start to build in that component of time into your portfolio and thinking of things across time horizons rather than just "what is the best long-term performing portfolio of cobbled-together assets?"

Break them down into specific time horizons, and that way you know you can afford to be patient with certain amounts of your money because you're impatient with other components of your money.

Not only can this ease obsessive worrying over investments, but it helps you better evaluate how they could perform. Once you know your time horizon, you can think about how the market or the stock might behave over this time period, then weigh the risks and rewards of what could happen.

As Steve said on Tuesday night...

Because it's just SO easy to get caught up in where we are in this specific moment, that it gets really difficult to see the big picture...

In his view, the big picture today is that the stock market could be on the verge of exploding out of this downturn a lot sooner than people think – and that stocks will be higher over the next decade... much higher...

As Brett Eversole, Steve's longtime protege, described to you earlier this week, he believes we're still in a secular, or long-term, bull market that could last another eight or 10 years. So, if you're investing for the next eight or 10 years, right now could be a time to get bullish.

On the other hand, this doesn't necessarily mean it's time to go 'all in,' either...

Firstly, as Steve also said on Tuesday night, you need to own the right stocks because the leaders of the past decade very likely won't be the leaders of the next one. I can tell you he's not suggesting you buy all the popular names of the past.

He has a different game plan... You can listen to his message for all the details, including the ticker of a stock he recommends buying today and the name of another well-known business that he thinks you should avoid at all costs.

What's more, with the market on a wintertime heater, there are risks ahead for folks with shorter time horizons – even if we have already seen a bear market bottom.

Stocks might be due for a pullback after the January rally...

Let's first take a look at tech stocks...

As we began with today, they have been outperforming lately. However, their overall trend is still down, according to the Nasdaq's 200-day moving average (200-DMA). And as our colleague Chris Igou noted in DailyWealth Trader yesterday...

The 200-DMA is trending lower, and the Nasdaq is finding "resistance" at that level right now. That tells us the bear market is still intact for tech stocks...

If the Nasdaq fails to rally above its 200-DMA and stay above it, that means a new downturn is close.

History also suggests that double-digit January gains for the Nasdaq have been followed by some pretty brutal Februarys. As Chris shared yesterday, the last times this index was up at least 10% in the first month of the year were 1991, 1999, and 2001.

[In 1991], investors saw another 5.8% gain in February of that year. But the other two cases were much worse. Tech fell 8.7% in February 1999. And February 2001 saw a 22% drop.

Today, the Nasdaq finished up roughly 3%, but one day does not make a new trend. Also, today's massive 23% gain from Meta Platforms (META) distorted the tech indexes. Keep an eye on whether this direction holds before declaring a new bullish trend "on" for tech stocks.

There's another telling, concerning short-term behavior. In the markets' Fed-related rally this week, the Dow Jones Industrial Average has not made new highs, as our Ten Stock Trader editor Greg Diamond pointed out today.

This is a significant divergence and not typical "risk on" behavior from the broader markets.

A possible trigger for a leg down in stocks (sometime)...

I can't tell you for sure what's going to happen next. But there is one large risk to consider in the markets today. I haven't heard much about this danger in the mainstream media, but it could make for a big inflection point in the markets...

It's the risk that inflation could slow faster than expected... all the way to the point of deflation.

Deflation (prices going down) is different from the disinflation (prices increasing, but slower than before) we're seeing now.

Deflation is recessionary. It means consumers who spend less, it means businesses that get less profit for making the same stuff, and it would very likely cause the Fed to not only "pause" but "pivot" and start cutting interest rates again.

Powell alluded to this possibility yesterday, if you listened closely when he said...

My forecast and that of my colleagues... generally, it's a forecast of slower growth, some softening in labor market conditions, and inflation moving down steadily but not quickly. And in that case, if the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year, to loosen policy this year.

Of course, other people have forecasts with inflation coming down much faster, that's a different thing. If that happens – inflation comes down much faster – then we'll be seeing that, and it will be incorporated into our thinking about policy.

Counterintuitively, could there be another market sell-off if the economy gets into this situation? Yes, there could. Be ready for the possibility. Because if the Fed cuts rates, it means the economy needs help.

And remember the note from market legend Marc Chaikin that every bear market since 1955 has only bottomed after the Fed started cutting rates. This is the reason why... It means help is on the way because the central bank thinks it is needed.

But will the next sell-off definitely send the markets below the lows of October and this past summer to a new bear market bottom? We can't know for sure.

We shared a lot of information today...

Hopefully, it helps you make sense of where we see the markets. The good news is that no matter what you think is going to happen next, your approach could be the same...

First, it's wise to have some dry powder to put to work. It lets you jump on great buying opportunities if stocks drop again, and it protects your portfolio from a possible short-term decline.

And, importantly, always know your time horizon. Over the long run, there are reasons to be bullish. But in the meantime, be careful about getting overzealous. Stocks are off to a great start in 2023, but that doesn't mean they can't pull back.

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In today's mailbag, a note that we love to see from a happy Stansberry Alliance member... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Team, The past year, 2022, showed me the real value of my Stansberry Alliance membership. I have been a Stansberry customer since 2009 and an Alliance member for nearly a decade. During most of this time I have been a largely passive investor, occasionally referencing one or another publication from my Alliance membership to better understand the sharp climbs or dips in the market and make sure that where I have my retirement savings invested is still on track for efficient growth.

"Every quarter and every year I was able to see that my investments were growing steadily, and occasionally I would make slight shifts in allocation based on your recommendations, and those decisions almost always boosted my returns. Of course I lost a little money during the Pandemic downturn and last year in 2022. And then I suffered an event that I thought came at the absolute worst possible time.

"In September of last year, my house suffered flooding from Hurricane Ian. I wasn't in a 100-year flood plain, so I didn't have flood insurance on my house. Furthermore, I live in an older home that has always been solid and comfortable enough, but over the decades it has gradually fallen behind modern code requirements. So recovering from the storm damage didn't simply mean building back the way it was: it meant doing code-required upgrades on everything from plumbing to the fuse box to the windows. In other words—a whole home renovation.

"For a few days I actually felt a little depressed thinking this was horrible. I was envisioning borrowing money at today's horrifying interest rates. And then I had to start filling out paperwork for everyone from banks to FEMA. And suddenly, I realized just how valuable my Stansberry Alliance membership has been. During the first part of 2022 I hit several trailing stops, so I came out of those positions and had been waiting to put that money back to work. Then as I started getting estimates for restoration and renovation costs, I realized that the cash I need to pay for everything is already sitting in my accounts.

"In short, I don't have to borrow a penny to recover from the hurricane and renovate my house, and I don't have to sell assets I'm in love with in order to free up that money. The best part is that even after having to allocate funds for this recovery from disaster, the lion's share of my investments are still churning away and still making me money. Of course, once I spend that money, I don't have it to put back to work in the markets, but research that editors like Dr. David Eifrig and Brett Eversole have recently published shows me that there are still plenty of opportunities to find good dividend income and amazing growth in the current secular bull market.

"The one thing I'm going to have to change for a little while is becoming less passive and more active with my investing. I've already started using some of the research that has been published since the start of the new year to build a more active portfolio to take advantage of these opportunities, and as I see those decisions bearing fruit, I'm allocating more and more of my passively-invested funds into active self-directed equities and securities based on the daily Stansberry Alliance recommendations I receive.

"Had Hurricane Ian or a similar catastrophic event never befallen me, I might have cruised through the rest of my working career and never realized just how valuable my Stansberry Alliance membership has been. I might have chalked up the gains in the market to simply 'rising tides lifting all boats.' But looking at how so many friends were devastated and wiped out by Hurricane Ian from a combination of living beyond their means during the pre-pandemic market boom, trying to time the market (and failing), and the crazy inflation we have seen in the last year, I realize just how blessed I have been.

"Now I am excited moving forward to take a more active role in the opportunities the market will give us through the rest of this decade to recover what I have had to spend because of Ian and grow my savings even faster than before. I am sincerely grateful for your past recommendations and that I can continue to rely on your future guidance. A thankful subscriber." – Stansberry Alliance member Kenneth S.

All the best,

Corey McLaughlin
Baltimore, Maryland
February 2, 2023