Don't Fret Over This 'Crash'... The Market Is Intact
Dear subscriber,
It's only 7%. Breathe.
Despite what the financial media and other online chatter may lead you to believe, there's no need to spiral into market-crash hysteria.
Yes, the market is down 7% from its all-time high set last month...
The front-page headline of Wednesday's Wall Street Journal screamed, "Stocks Slide as Trade War Escalates"...
CNN's widely watched Fear & Greed Index has hit "Extreme Fear"...
And though CNBC hasn't broken out its "Markets in Turmoil" graphics just yet... it feels close.
Ignore the "extreme fear."
While it's good to have your antenna tuned in to risk, the true indicators you should be watching haven't rolled over yet.
In fact, experienced investors see this decline as trivial.
During the 2008 financial crisis, I witnessed seven single-session drops of between 5% and 12%. And the intraday swings were far more violent. Many investors today have never seen such turmoil.
Even so, past market beatings don't diminish the current sting...
Plenty of investors hold portfolios with risky assets like cryptos, meme stocks, and leveraged exchange-traded funds.
These portfolios invite sleepless nights. And to someone with a "junky" portfolio and consideration for risk, a 7% decline can feel pretty hefty.
But let me point you to some signs of calm in this market...
We'll start with the CBOE Volatility Index ("VIX"). It's often called the market's "fear index" because it's used to gauge investors' expected volatility.
I don't love the nickname – as it's not precisely what it measures – but it's a reasonable shorthand.
What the VIX really reflects is the cost of insuring against stock losses (i.e., the prices of options) over the next 30 days.
When the VIX is low, it means investors don't expect much volatility (so they aren't paying for the protection that options afford). When the VIX is high, investors are fearful of volatility (and options become more expensive).
In our experience, true market volatility begins when the VIX is around 30. When it rises above 40, it signals peak fear (and a potential buying opportunity). Today, the VIX is at 25, so it remains below fear territory...
Now, the bond market is smarter than the stock market. Last week, I pointed out that the 10-year Treasury yield's recent decline signaled investors' lower growth expectations.
However, the high-yield credit spread – which measures the difference between junk-bond yields and Treasury yields – is painting a somewhat different picture...
In short, when the spread is high, it means junk-bond investors are fearful and demanding a higher yield for the added credit risk.
When the spread is low, it means they're willing to accept a lower yield for the risk. In other words, they aren't worried about a credit crisis or the economy breaking down.
And the high-yield spread is still extremely low, at just under 3%. So junk-bond investors aren't worried...
Over the past month, markets have flipped from one extreme to another.
When the major indexes were at all-time highs in February, I warned there was an "undercurrent of fear" in the market. I pointed out that money was moving into defensive sectors like consumer staples.
The bond and equity markets were warning us of bearish sentiment among investors.
But if you look at the headlines, everyone's acting as if the entire economy is on the brink of collapsing.
There's a lot of room between those two views – and the truth is in the middle ground...
Treasury yields tell us that investors fear slowing growth. The movement into consumer staples stocks is also a sign that folks are seeking safety today. But the high-yield credit spread and the VIX tell us that we shouldn't be afraid of a complete breakdown.
Rather, this is just a minor correction.
It still makes sense to be in more defensive investments going forward. I certainly wouldn't recommend holding any junky "bubble" stocks today. But if the stock market and economy truly start to break down, we'll see it in the VIX and the high-yield credit spread.
I won't call the exact bottom of this correction. Corrections of 10% or more happen regularly, and we're likely overdue for one.
But if your portfolio is built on strong fundamentals and quality businesses – like the kinds we seek at Stansberry Research – you can rest easy. Mind your stop losses... but don't stress that this recent downturn is the "big one" that will break the market just yet.
What Our Experts Are Reading and Sharing...
Stansberry Research's own Greg Diamond says it's time to get bullish. Greg is a technical trader, rather than an investor, and he always has a finger on the pulse of the market. On Wednesday, in a free episode of Diamond's Edge, he explained how the Elliott Wave Theory shows the market is about to rally. He also looks at some interesting chart signals, how you can spot trade opportunities today, and how to manage risk in such a volatile market.
Europe's largest economy is about to take off. According to the Financial Times, President Donald Trump's threats to remove "U.S. guarantees that have long underpinned the continent's security" is spurring Germany to spend a lot more on its own defense. And, like it or not, defensive spending is stimulative to economies... Germany announced it would exempt defense spending from its debt limits and launch a 500-billion-euro infrastructure fund. This is a major stimulus effort and big regime change for Europe.
Even crypto folks think Trump's idea of a strategic reserve including Ripple, Solana, and Cardano doesn't make sense. So far, it's just talk (and in today's world, a government building up a crypto reserve isn't completely crazy). But even the crypto industry sees this as an odd selection of cryptos to include. In an opinion piece at crypto news site Blockworks, Donovan Choy even says it "screams political cronyism of the highest order."
New Research in The Stansberry Investor Suite...
My thoughts above rely on the belief that markets are pretty smart...
However, to find great investments, you need to ferret out the rare times when markets are dead wrong.
That's what Whitney Tilson and the rest of the Stansberry's Investment Advisory team have done this month...
There's a lot of turmoil in the U.S. today. And Elon Musk and his Department of Government Efficiency ("DOGE") are taking the metaphorical chainsaw to government programs.
One group of stocks tied to the recent spending cuts has already declined roughly 35%. But if you dig deeper and understand these businesses, you'll realize that the market's fears are misplaced.
This month's recommendation is a similar company, and it has also come under pressure lately...
The company the team has unearthed should not be a DOGE victim. Instead, there's a strong case that this company will actually profit from the government's streamlining...
If DOGE has any hope of meeting its efficiency and cost-cutting targets, then the government will need even more IT – and surely AI – to automate jobs and streamline processes... which is exactly where this company comes in.
Not only that, but this company is slowly and steadily growing earnings worldwide.
On a specialized metric we built to measure the steadiness of a company's earnings, this stock scores in the top 10 out of more than 1,500 stocks.
This company has such sound financial results that the team compares it favorably with two of the best-performing stocks of the past two decades: Costco Wholesale (COST) and AutoZone (AZO).
This is exactly the kind of research that finds you outsized opportunities in markets. And I can guarantee this is a stock almost no readers have heard about.
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Until next week,
Matt Weinschenk
Director of Research
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