The Hot New Report to Watch
Dear subscriber,
There's a new cool kid in school, and he's got the attention of everyone in the cafeteria...
For the past three years, all eyes have been on inflation reports.
Like teenagers monitoring their peers' rising and falling social fortunes... investors have fixated on every fluctuation in the data, wondering if prices will start coming back down... or head even higher.
But suddenly... no one cares about inflation anymore. They're now focused on employment data.
After all, jobs move markets.
So let's take a step back from the rapid-fire news and break down the employment market...
The unemployment rate is a simple statistic that measures how many people want a job, but don't have one. And it's a surprisingly good indicator of the direction of the market.
When unemployment puts in a true bottom and begins to rise, it coincides very tightly with significant tops in the market. And right now, the unemployment rate is turning higher...
So... does this predict another downturn in the market?
No. It's not that simple.
See, unemployment is rising. But if you look at why, you may have a little more confidence in the economy and the market.
Usually, the unemployment rate rises because companies are laying people off or have stopped hiring workers. That's not the case here.
Job growth is still running strong, at more than 100,000 new jobs per month. That's a level consistent with a healthy economy...
And the number of weekly initial jobless claims – folks who are laid off and file for unemployment benefits – remains low at only about 230,000...
(Lest you worry that 230,000 weekly jobless claims outpaces the roughly 100,000 new jobs we're adding each month... know that the job gains are net of losses. So employment is growing.)
We're still creating jobs – and jobless claims are low – so where's the uptick in the unemployment rate coming from?
Immigration has surged. The Congressional Budget Office estimates net immigration of 3.3 million people per year for 2023 and 2024 – with the growth largely coming from undocumented immigrants. That's up significantly from 2.7 million in 2022 and 1.2 million in 2021.
If you have 3.3 million new people per year, you'd need 275,000 new jobs per month to keep the unemployment rate down. That's a level only seen in economic booms.
The Federal Reserve Bank of San Francisco even found that the employment problem is worse in states with higher immigration.
So, the rise in the unemployment rate is being driven by a rise in immigration. That's not necessarily a sign of a weak economy.
To be clear, that's not to say that immigrants are leading people to lose their jobs. Rather, they're driving the unemployment statistic up by upping the number of people searching for work.
At Stansberry Research, we think your best advantage as an investor is from identifying quality businesses from the ground up. But when you turn to the macroeconomy, you've got to dig deeper than the headline numbers.
That's true when it comes to inflation reports. And it's true for unemployment data. Right now, unemployment is rising, but it's not as bad as you suspect.
What Our Experts Are Reading and Sharing...
The Financial Times recently published a fantastic piece on the rise and fall of Monte dei Paschi di Siena – an Italian bank that stretches back to the time of Leonardo da Vinci. The tale involves the Medici family, a severed pig's head, and death by suicide. And it encapsulates all the challenges facing European banks today.
The Sahm Rule says a 0.5% rise in the three-month average unemployment rate presages a recession. It's a good rule... even if it's a little conflicted right now. Economists Pascal Michaillat and Emmanuel Saez proposed an improvement to the indicator in a new paper. Their model includes unemployment data as well as job vacancies. The conclusion: We're in the midst of a recession that started in March 2024. Read their paper here.
Investment firm GMO recently published a research note that compares today's tech stock valuations with those of the early 2000s. It points out that tech stocks are expensive, but they're still nowhere near as expensive as they were in the dot-com bubble. The top 10 stocks today sport a median price-to-earnings ratio of 27 times. In February 2000, the same measure reached 60 times.
New Research in The Stansberry Investor Suite...
Whether you just fled Hurricane Debby, have been watching for wildfires out West, or recently saw Twisters in the theater, extreme weather is on everyone's mind.
And for good reason.
According to the National Oceanic and Atmospheric Administration, from 1980 to 2024, the U.S. averaged 8.5 weather and climate disasters each year causing at least $1 billion in damage (adjusted for inflation).
Over the past five years, from 2019 through 2023, that average has ramped up significantly to 20.4 disasters each year.
You may expect that as technology gets better, we experience fewer blackouts and losses of power due to storms and other events. But you'd be wrong.
The number of power outages in the U.S. has risen over the years (with a surprisingly quiet year in 2023)...
Power is essential for keeping hospitals, emergency services, and communication systems operational during natural disasters.
Fortunately, there's a major effort underway to modernize our grid...
This month, our Stansberry Innovations Report team breaks down the undisputed leader in the power industry.
This company helps individuals and businesses keep the power on when things go awry... and it has secured a $200 million contract from the U.S. Department of Energy to help upgrade the national grid.
Plus – despite its dominance – the stock trades at an enterprise value ("EV") to earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiple of 12.5 times. That's toward the low end of its five-year range.
As a Stansberry Investor Suite subscriber, you can read the entire report by clicking here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our new special package of research – click here.
Until next week,
Matt Weinschenk
Director of Research