The Case for Staying the Course

Small businesses sue Trump... Another fine day... When sentiment sours, stocks have done well afterward... The long-term numbers... Mailbag: What's happening with the Strategic Petroleum Reserve?...

The courts are involved now...

A wine importer and distributor in New York... a sportfishing-gear business in Pennsylvania... a pipe company in Utah... and a couple other small U.S. businesses filed a lawsuit against President Donald Trump yesterday.

They're seeking to block Trump's new tariffs on foreign imports, alleging they're illegal because Congress doesn't grant a president the power to levy tariffs based on trade deficits with other countries on the basis of a national "emergency." On "Liberation Day," Trump cited the International Emergency Economic Powers Act of 1977 during his tariff announcement.

That day, the White House said Trump was...

[I]nvoking his authority... to address the national emergency posed by the large and persistent trade deficit that is driven by the absence of reciprocity in our trade relationships and other harmful policies like currency manipulation and exorbitant value-added taxes (VAT) perpetuated by other countries.

The suit filed by small-business owners yesterday counters...

His claimed emergency is a figment of his own imagination: trade deficits, which have persisted for decades without causing economic harm, are not an emergency. Nor do these trade deficits constitute an "unusual and extraordinary threat."

A cycling-apparel business from Vermont claims in the suit that it has already paid $25,000 in "unplanned tariffs this year for goods" and projects tariffs "will cost the company approximately $250,000 by the end of 2025" and that the business won't survive.

Now, I (Corey McLaughlin) am not a lawyer, but I do know these things typically take a while to reach an ultimate conclusion... and this case seems destined for the Supreme Court.

When you pair this suit with what we've heard recently about tariff "flexibility"... exemptions... and expected trade deals with more than 10 foreign partners to be announced in the future, it sure sounds like the tariff war is losing its teeth.

I could be wrong. But all of this could mean more "less bad" news for the market...

Today looked a bit like yesterday...

The major U.S. stock indexes each moved higher intraday, though finished slightly lower.

Volatility eased a bit – with the CBOE Volatility Index ("VIX") falling below 30 for the first time since April 3. Longer-term bond yields moved lower, too, but not by as much as yesterday.

Still, after a significant down day last Thursday, the headline stock indexes have only returned to near the peak of last Wednesday's "relief rally" after Trump announced a 90-day pause on most tariffs.

For starters, we'd want to see some trading behavior above that level (closer to 5,500 on the S&P 500 Index) to be more optimistic that a new uptrend has begun.

'Sitting tight'...

As Stansberry's Investment Advisory lead editor Whitney Tilson shared in his free daily newsletter today, there's an endless negative news cycle right now. But he's preaching patience. As Whitney wrote...

[W]hy am I not telling my readers to sell everything and hold cash, which is paying a decent 4%-plus interest rate right now?

First, as I've argued previously, almost all of the pain and uncertainty is self-inflicted. That means most of it can – as we saw last week – be mitigated with a social media post/announcement.

And second, it's precisely when investor and consumer sentiment is the worst – and volatility is the highest – that stocks tend to do the best.

Here's one example of this, showing that the University of Michigan Consumer Sentiment Index is actually a brilliant contra-indicator (chart again courtesy of Bilello's latest Week in Charts):

The chart shows that the S&P 500 has returned an average of 18.7% over the 12 months following periods when consumer sentiment – based on the University of Michigan surveys – was among its lowest 5% measurement of all time.

Conversely, after times when consumer sentiment was extremely positive, stocks only returned an average of 3.9% over the following year. Now, that said, Whitney continued...

So do I think the S&P 500 Index is likely to rally 18.7% in the next year – the average of what it has done in the past when consumer sentiment is in the bottom 5%, as it is today?

No...

If you look at the chart over the past 73 years, most of the other times sentiment was so bad (mostly amid the stagflation of the 1970s and during the 2008 global financial crisis) stocks were cheap... unlike today.

So investors should have modest expectations and prepare themselves for plenty more volatility and negative news flow.

But my "spidey sense" isn't telling me to either buy or sell across the board, so I continue to believe that sitting tight remains the best course.

Here's some more evidence for practicing patience...

Last week, we mentioned senior analyst Jeff Havenstein's piece in the free daily Health & Wealth Bulletin. Jeff found that the market has seen strong returns one and two years after major drops in U.S. stocks like we just saw.

In the two days after Liberation Day, we saw the third-worst two-day stretch for the S&P 500 – down about 10% – since the turn of the century. But as Jeff said...

However, this isn't the first time we've seen markets fall steeply over a two-day period. It has happened quite a few times. And the good news is that, according to history, markets are usually significantly higher both a year later and two years later.

The following table comes from banking company Truist Financial. It looked at the 10 worst two-day stretches for the market since 1950 (not including the recent tariff drawdown).

There was Black Monday, a number of instances during the great financial crisis, and two more during the COVID-19 bear market. Take a look...

In the months after these sudden drops, results vary. But on average, stocks were up 2% three months later and nearly 6% six months later.

When you look further out, it gets more encouraging. In all of these situations, the S&P 500 was higher one and two years later. The average gains were 27% and 40%, respectively.

For long-term investors, there are still reasons to be optimistic. You'll just have to stomach the short-term volatility.

Jeff acknowledged that the tariffs obviously add a new wrinkle, and things can always get rockier over the next few weeks and months. But he still likes "the outlook for the next year or so. As the table above shows, things are likely to improve in that time."

That said, don't expect smooth sailing from here...

As we quoted above, Jeff mentions needing to "stomach the short-term volatility." That's an important point. While the odds are that we'll see higher stock prices in the longer term, we don't know what will happen in the future with certainty – particularly in the short term.

That's why you need to prepare your portfolio for anything – including the kinds of situations most investors don't learn about until it's too late.

For example, in 2021, we warned about the dangers of the conventional "60/40 stock-bond" portfolio in these pages. Conventional wisdom said this type of portfolio would keep making a "safe" return in the years ahead based on what had happened in the past.

But we warned that interest rates could only go higher because of 40-year-high inflation, which would hurt both stocks and bonds. We urged readers to prepare their portfolios. The 60/40 portfolio went on to lose roughly 23% from January 2022 through November 2022.

Right now, my colleague and friend Dan Ferris is making it his mission to share another major story that could shock investors.

It has to do with what Trump has been doing lately with foreign trade, but it goes way beyond tariffs. The idea has been called the "Mar-a-Lago Accord." Billionaires and financial experts around the world are preparing... and you should, too.

You can learn more from Dan about how to protect (and grow) your portfolio here. (Extreme Value subscribers and Stansberry Alliance members already have access to this research here, but feel free to check out the presentation as well.)

New 52-week highs (as of 4/14/25): Agnico Eagle Mines (AEM), Alamos Gold (AGI), Alpha Architect 1-3 Month Box Fund (BOXX), Franco-Nevada (FNV), VanEck Gold Miners Fund (GDX), VanEck Junior Gold Miners Fund (GDXJ), Kinross Gold (KGC), Royal Gold (RGLD), Sandstorm Gold (SAND), Sprott (SII), Torex Gold Resources (TORXF), and Wheaton Precious Metals (WPM).

In today's mailbag, feedback on depressed oil prices, which we noted in yesterday's Digest... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Has anyone been talking about the Strategic Petroleum Reserve in regards to this drop in oil prices? Besides pricing Iran out of the market and punishing the OPEC cheaters, could it be that this also is a coordinated effort to allow us to refill more cheaply what the previous administration drained from it? Regardless, we're now about $10 below the approved price range and I sure hope the SPR purchase program is taking advantage of that." – Subscriber R.M.

Corey McLaughlin comment: That's a good point. We haven't talked about the Strategic Petroleum Reserve ("SPR") in a while. This would certainly be a good time to refill the thing at cheaper prices, and below the $67 to $72 price range for West Texas Intermediate ("WTI") – the U.S. benchmark – that Joe Biden said the U.S. government would replenish the stockpile. WTI traded around $61 per barrel today.

So far, we haven't seen signs of refilling the SPR at any notable rate. Since the start of Trump's second term, the SPR stock has risen only slightly, by roughly 2 million barrels in three months, according to data from the U.S. Energy Information Administration. It had been refilled at a slightly higher rate during the final year of the Biden administration.

We'll keep watch – for more than one reason... As our Commodity Supercycles team wrote back in January...

[The SPR] needs around 263 million barrels added to it to get back to 2020 levels. That's going to keep a floor under oil prices for years to come as the U.S. buys back oil.

On a related note, just two weeks ago, the Department of Energy handed out a new $1.4 billion five-year contract to manage and operate the SPR.

Starting in June, Strategic Storage Partners – formed in joint partnership with Aptim Federal Services and BWX Technologies – will oversee the federally-owned oil stocks (stored in underground salt caverns at four sites in Texas and Louisiana).

All the best,

Corey McLaughlin
Baltimore, Maryland
April 15, 2025