The 'American Way'

Onward and upward... Stocks (and gold) are around all-time highs... The signal... High inflation fuel: Round 2?... Your wealth, your way... Getting ahead of the Fed 'surprise'...

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Round and round it goes...

On the surface, the headline U.S. stock indexes appeared "mixed" again today.

The benchmark S&P 500 Index and Dow Jones Industrial Average closed a fraction higher, while the tech-heavy Nasdaq Composite Index was down.

But the S&P 500 is less than 1% from a new all-time high and the Dow hit a new one.

And all the major S&P 500 sectors that don't include the most popular mega-cap tech names were higher today. Financials, utilities, health care, materials, and energy were all up.

In short, we're continuing to see the market "rotation" we've been talking about since mid-July, when most of the "Magnificent Seven" tech names hit their most recent highs. Since then, the other "S&P 493" have been winning – a good thing if you want to see a bull market continue.

Yet guess what else is hitting record highs?

Gold hit a new all-time on Friday, around $2,580 per ounce... traded a hair higher today... and is up 25% year to date.

As I (Corey McLaughlin) have written in the past few months, the precious metal has had several fundamental catalysts going for it – like the threat of escalating wars and presidential-campaign promises to "fight" inflation.

Then there's the growing expectation for the Federal Reserve to lower interest rates and make the "cost of money" cheaper. That has helped push both gold and stock prices higher.

That move will assuredly happen this week.

The U.S. central bank has a two-day meeting starting tomorrow. It will announce its next policy moves Wednesday afternoon, followed by a press conference from Fed Chair Jerome Powell.

Right now, the open question is by how much will the Fed "cut" – 25 or 50 basis points (which would put the Fed's target range closer to 5.25% or 5%, respectively, versus the current 5.5%)?

As my colleague Dan Ferris said in his Friday essay...

Fed Chair Jerome Powell has publicly said that the Fed is now in cutting mode, so it seems likely we'll see an interest-rate cut next week.

But it's a little crazy that so many folks are obsessed with how much the Fed will cut. Millions of people are wringing their hands wondering if it'll be 25 or 50 basis points.

At the heart of the question is the labor market. The unemployment rate is currently 4.2%, which is already higher than what the Fed projected it to be at year-end, and job-growth numbers are dwindling.

Drumbeats for a 'larger cut'...

Even in a media "blackout" – which is standard practice for the week before a central-bank policy meeting – the Fed has (indirectly) been managing to get the word out about its possible decision...

Nick Timiraos of the Wall Street Journal – who some have snidely described as the Fed's "mouthpiece" – published a piece on Thursday quoting current and past Fed officials, including a former Powell adviser named Jon Faust. Faust suggests the larger, 50-point cut is appropriate.

As Timiraos wrote...

Officials need to consider whether "you want to be the most restrictive you've been in the entire rate-tightening cycle at a moment when there's a pretty clear path to 2% inflation and the unemployment rate is above" where most Fed officials expected it would go this year, said Chicago Fed President Austan Goolsbee in an interview last week.

The rate-setting Federal Open Market Committee ["FOMC"] has usually cut in larger increments when financial markets are showing greater alarm over the economic outlook, as was the case at the start of 2001 and in 2007 during the early innings of the global financial crises.

"I don't think we're in a spot that really shouts out for a pre-emptive 50," said Faust, a fellow at the Center for Financial Economics at Johns Hopkins University. "But my preference would be slightly toward starting with 50. And I still think there's a reasonable chance that the FOMC might get there as well."

Faust said he thinks the Fed could manage concerns about spooking investors with a larger cut by providing "a lot of language around it that makes it not scary." He added, "It wouldn't need to be a sign of worry."

Faust is referring to the idea that investors could see a larger rate cut as a significant "bad news" signal from the Fed about the economy, which could be a bearish catalyst for the stock market.

Until now, any bad news we've reported on about the economy hasn't prevented the S&P 500 from being up around 18% year to date.

Bad news has resulted in some down days, sure. But overall, the major indexes are still trading above their long-term trends, even as the unemployment rate and claims have been generally rising since April 2023 and job growth has slowed.

On the other hand, the Fed risks being "behind the curve" again on unemployment opposed to inflation (which it probably already is) if it doesn't employ a larger cut.

This morning, former New York Fed President Bill Dudley wrote an essay for Bloomberg supporting the idea of a larger rate cut. The headline? "The Fed Should Go Big Now. I Think It Will."

The market seems to be getting the idea. Over the past week, the odds in the futures market have swung in favor of a 50-basis-point cut, with federal-funds futures traders putting 60% odds on it versus 30% a week ago.

A "larger" rate cut shouldn't surprise those who are following the Fed parlor game closely enough to care.

Shades of 2020...

What's happening today looks similar to what we saw in the spring and summer of 2020. Stocks were moving higher in the early stages of a massive bull run, fueled by ultra-low interest rates (near zero) and pandemic stimulus programs.

Gold rose roughly 20% from April 2020 to a high above $2,000 per ounce in August 2020. Gold again soared to around that high during the start of the Ukraine war in spring 2022. But it didn't eclipse that number until earlier this year when expectations for Fed rate cuts began again.

Today, the Fed is saying to forget that we recently saw 40-year-high inflation. As Powell told central bankers in Jackson Hole last month, it's conquered.

The Fed says the monetary environment will be getting easier again. And there's still plenty of government stimulus throughout the economy, just not in blatantly obvious forms like debit cards mailed to Americans.

Instead, there's the $34.8 trillion in federal debt (and counting), which is 120% of U.S. GDP... another year of a $1 trillion-plus deficit ongoing... a continued devaluation of the U.S. dollar... and a cheaper cost of money coming.

It's the "American way." Today's story is rhyming, like it has every time the Fed has embarked on a rate-cutting cycle.

That's why protecting and growing your wealth is essential.

Own shares of high-quality stocks. Buy those shares at reasonable valuations. Own inflation hedges. And to limit downside risk and spot potential buying opportunities, keep an eye out for the next "credit crisis," because that's when panic most shows up in the market.

In the short term: Expect more volatility...

Over the past few months, we've seen the market have down days on "bad news" about the economy, but also good days on "good news" about the Fed potentially lowering rates and positive earnings growth from corporations (even if results weren't as positive as a year ago).

We expect to see more volatility – in both directions – over the next few months as the downside of an economic slowdown, and possibly a recession, is weighed against the expectation for more financial "juice."

Our colleague, Ten Stock Trader editor Greg Diamond, wrote to his subscribers today about his thoughts on the subject, using his technical "time and price" indicators...

When I mention volatility, investors often assume they'll only see big moves down. But it can include big swings in both directions.

We witnessed this firsthand last week... There was a big move down followed by an equally big move up in the S&P 500 Index.

In short, we could see more volatility in and around the Fed meeting this week... and Greg says bulls may want to be careful.

Stansberry Alliance members and Ten Stock Trader subscribers can find Greg's full Weekly Market Outlook here, and all Digest readers can find his free Diamond's Edge video below.

In the long term: Inflation, reignited?...

We've spilled a lot of ink over the past few months about the weakening labor market and the increasing number of troubling economic indicators. Now, the Fed is about to do what it's "supposed" to do: juice the economy to slow any further weakening.

Of course, that comes with a trade-off, like potentially higher inflation again. This idea has the attention of a few of our editors, who think we could be headed toward a repeat of a full decade of 1970's-style high inflation.

In other words, the inflation we saw in 2021 and 2022 could just be the start of our inflation nightmare. Check out this chart from Bitcoin News on social media platform X that Crypto Capital editor Eric Wade shared with several of his fellow editors today...

The orange line shows the nominal rates of inflation (as measured by the consumer price index) from 1966 to 1983. The blue line shows inflation from 2015 through today.

As you can see, while the nominal rates of inflation were higher from 1966 to 1983 compared with 2015 through today, the percentage changes in the path of inflation are nearly identical.

Will history repeat? We can't say for sure. But the thought is compelling. The Fed is lowering rates as soon as it possibly can after a 40-year-high spike in inflation (according to its math). So why wouldn't inflation reignite (absent a great recession)?

This is the problem with a central bank trying to manage a roughly $29 trillion economy. Even if the Fed doesn't actually believe it can manage the economy, it acts like it can to meet its congressional dual mandate of ensuring "stable prices" and "maximum employment."

But the means for "managing" the economy are up for discretion. Sometimes the answer is in the "money printer" to keep the whole thing going. Other times, the tool is a rate cut.

How to prepare for the Fed's next move...

Our friends over at our corporate affiliate Chaikin Analytics are putting the finishing touches on a brand-new, free presentation that will debut at 8 p.m. Eastern time on Thursday.

And the subject is the Fed's next move...

Chaikin Analytics founder and Wall Street legend Marc Chaikin, who predicted the 2022 bear market, the 2023 regional-bank runs, and the return of a bull market, is stepping forward to issue his next critical market warning.

On Thursday night, he's going to reveal where he thinks the Fed's next move could send the stock market – and what to do with your money to prepare. In short, Marc says "there's a dark side" to the upcoming Fed meeting.

Marc is also going to revisit the predictions he made about artificial intelligence this time last year, share the details about why he's calling for a big shift in the market in the next 90 days, and give away two free stock recommendations: one to buy and one to avoid.

Register now for the event to make sure you don't miss it. When you do, you'll also get access to a version of Marc's signature Power Gauge system and a pair of free reports that can help you put it to use ahead of Thursday night's event. Again, the event is totally free.

Click here to sign up now.

New 52-week highs (as of 9/13/24): Agnico Eagle Mines (AEM), Alamos Gold (AGI), Altius Minerals (ALS.TO), Alpha Architect 1-3 Month Box Fund (BOXX), Compass (COMP), Costco Wholesale (COST), Cintas (CTAS), Direxion Daily Real Estate Bull 3X Shares (DRN), iShares MSCI Spain Fund (EWP), Fair Isaac (FICO), Fidelity National Financial (FNF), VanEck Gold Miners Fund (GDX), SPDR Gold Shares (GLD), Barrick Gold (GOLD), iShares iBonds December 2025 Term Treasury Fund (IBTF), iShares Convertible Bond Fund (ICVT), Jack Henry & Associates (JKHY), Nuveen Preferred & Income Opportunities Fund (JPC), JPMorgan Chase – Series LL (JPM-PL), Kinross Gold (KGC), Kenvue (KVUE), London Stock Exchange Group (LNSTY), Newmont (NEM), NVR (NVR), Omega Healthcare Investors (OHI), Oracle (ORCL), Pembina Pipeline (PBA), Sprott Physical Gold Trust (PHYS), Planet Fitness (PLNT), RadNet (RDNT), Royal Gold (RGLD), Sandstorm Gold (SAND), Sherwin-Williams (SHW), iShares 1-3 Year Treasury Bond Fund (SHY), Skeena Resources (SKE), Stryker (SYK), Trane Technologies (TT), The Trade Desk (TTD), ProShares Ultra Gold (UGL), Vanguard Short-Term Inflation-Protected Securities (VTIP), Wheaton Precious Metals (WPM), Consumer Staples Select Sector SPDR Fund (XLP), and Utilities Select Sector SPDR Fund (XLU).

In today's mailbag, feedback on Dan's Friday essay, which included his Fed analysis... and a longtime Stansberry Alliance member concurs with our endorsement of Dr. David "Doc" Eifrig's latest issue of Retirement Millionaire... As always, send your notes to feedback@stansberryresearch.com.

"As usual, Dan Ferris hit it out of the park in his 9/13 article regarding the Fed and interest rates. Dan seems to be the leading voice of rational thought on the subject. I continually hear fellow investors discuss their obsession with the Fed cutting rates and I continually tell them to be careful what they wish for. Thanks, Dan, for the sound words and advice." – Subscriber Jim V.

"Corey, I heartily endorse your plug for Retirement Millionaire in Thursday's Digest. I've been a Stansberry member since 2007. And with all due respect for the entire Stansberry team – you guys are great – I probably pay more attention to what Doc says (and Dan) than anyone else.

"However, I'm biased. I worked in the financial industry from the 1970s through the 1990s. I've seen what Doc's seen. He's light years ahead of me in market knowledge and expertise. But Doc has an uncanny ability to make confusing concepts easy-to-understand. With my own knowledge of how the economy functions (or doesn't), I can fully grasp his logic/conclusions. I personally recommend your readers study any of Doc's writings they can get their hands on.

"Which brings me back to my original reason for this feedback – to commend Doc. IMHO his current Retirement Millionaire issue is one of, if not THE best, and most timely, he's written. Especially considering the precarious state of the markets, the economy, and the world!

"I'll be re-reading and digesting it over the coming weeks/months. Thanks Doc!" – Stansberry Alliance member Bill K.

Corey McLaughlin comment: Bill, glad you agree with the endorsement. I think Doc's issue should be required reading for all investors. If any Alliance members or Retirement Millionaire subscribers haven't read this month's issue yet, you can find it here.

And, again, if anyone doesn't yet subscribe or have access to Doc's signature newsletter, and you're interested, click here for more details on how to get started and everything that's included.

All the best,

Corey McLaughlin
Baltimore, Maryland
September 16, 2024