Waiting on Common Sense
Major wars could be closer to ending... Waiting on common sense... Who cares about inflation... The Fed is still on a path to lower interest rates... Pandemic-level economic uncertainty... Greg Diamond's free live YouTube session tomorrow...
There's plenty of global war news to report on today...
In neutral-site Saudi Arabia, high-level U.S. and Russian officials met about ending the war in Ukraine, which is just a week away from hitting the three-year mark.
To start, U.S. Secretary of State Marco Rubio and Russian Foreign Minister Sergey Lavrov agreed to restaff their respective embassies so their underlings can presumably begin working out details of a potential peace agreement.
Step by step, the war appears closer to a conclusion than at any point in the past several years...
As I (Corey McLaughlin) wrote last Wednesday, President Donald Trump also recently spoke with Russian President Vladimir Putin and then with Ukrainian President Volodymyr Zelenskyy about ending the war, which was a catalyst for today's meeting.
However, Ukrainian officials weren't involved in today's meeting at Saudi Arabia's Diriyah Palace. U.S. national security adviser Mike Waltz suggested they would be included in talks soon enough. It's "common sense," Waltz said today. "If you're going to bring both sides together, you have to talk to both sides."
We'll wait on the 'common sense' to present itself...
But should the war in Ukraine end, a lot of investors would breathe a sigh of relief... with at least one ongoing global inflation risk taken off the table. It would be one less uncertainty to consider these days.
Meantime, in the Middle East, Trump's plan for a U.S.-run "Riviera of the Middle East" in the Gaza Strip remains a concept only. And Hamas says it's going to release more Israeli hostages than previously agreed upon in prisoner exchanges this week.
It's unclear why the Palestinians are preemptively doing this, but the surprise announcement may signal that the 500-day immediate conflict in the Middle East is also moving closer to an end.
This war hasn't moved global markets as much as the one in Ukraine, but similarly, an end (even if just for now, given Middle Eastern history) would take some uncertainty around global energy supply – and inflation – off the table.
Inflation is still a concern, though...
As we wrote last Thursday, the latest official inflation data for January came in "hotter than expected" – again...
Headline PPI [the producer price index] – which measures prices paid by sellers, or businesses, and is seen as more of a leading indicator of inflation – rose by 0.4% in January and 3.5% year over year.
Combined with yesterday's consumer price index ("CPI") report for January – which measures prices paid by Main Street buyers – that showed a 0.5% leap for the month and a 3% year-over-year rise, the state of inflation to start 2025 is clear.
It's running hot, just like it was for much of the fourth quarter of 2024.
Wall Street largely brushed off and saw through the numbers, though. That's because a wonky math translation of CPI and PPI data into the Federal Reserve's preferred personal consumption expenditures ("PCE") inflation gauge formula shows monthly price growth "only" around 0.2%, on pace for the central bank's 2% annualized goal. But that doesn't mean the high(er) inflation we've lived with since spring of 2020 is gone.
And it doesn't mean that the lower-interest-rate environment "everyone" is expecting in 2025, courtesy of the Fed, is a guarantee. Nonetheless, the central bank is still sending messages to the market to expect exactly that...
Fed-speak translator: We don't know why, but lower rates are coming...
Multiple Fed officials are scheduled to give public talks this week. Yesterday, Fed Governor Christopher Waller got things started by saying he views the latest inflation spike as more seasonal, or temporary, like it was this time last year – though he doesn't know why...
There seems to be some pattern over the past few years of higher inflation readings at the start of the year. This pattern brings into question whether the inflation data have 'residual seasonality,' which means that statisticians have not fully corrected for some apparent seasonal fluctuations in some prices.
He did everything but say the word "transitory" (a past Fed favorite).
But, similarly, about tariffs – another inflation concern for many – Waller said their impact on the economy should "only modestly increase prices and in a non-persistent manner." In other words, transitory and not so bad... to him.
In any case, Waller added that policy uncertainty from the White House shouldn't influence Fed policy, and he would expect the central bank to lower rates this year if more "progress" is made on inflation. This is the prevailing market narrative right now.
The major U.S. stock indexes were mixed today, with the benchmark S&P 500 Index up 0.3%. Gold gained more than 1% and is now trading near $2,940 per ounce. Oil prices were slightly higher, as were long-term Treasury yields.
The story beneath the surface...
You might have noticed that the "Magnificent Seven" – the en vogue class of ultra-valued tech stocks – have been lagging the broader market lately. Meta Platforms (META) is the exception. It recently strung together 20 straight trading days of gains.
As our Director of Research Matt Weinschenk wrote in his latest edition of This Week on Wall Street on Friday...
After dominating for years, the Magnificent Seven are now down nearly 5%, on average, since their December high...
And this drop has only accelerated with the companies' latest earnings announcements...
Shares of Apple (AAPL) fell from late January into early February after the tech giant reported weak iPhone sales. Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL) also dropped after their announcements, though their dips were mostly due to their plans to heavily boost investments in AI and data centers.
(As I predicted in August, investors are starting to get impatient with all this AI spending. There still aren't any profits to show for it.)
Tesla (TSLA) got a huge bump after Elon Musk helped President Donald Trump win the election. (It helps to have friends in high places.) But the stock's gain has since reversed, as with Musk's attention elsewhere, Tesla's vehicle sales have fallen to 2021 levels...
Now, a bull might look at this and say, "While the 'Mag Seven are lagging, the broad market isn't down substantially... Isn't that a good thing?" Well, as Matt continued...
You may think that's a good thing...
I've certainly lamented on the concentration in the top tech stocks, and I've looked forward to when we finally see a healthy rotation into other good businesses.
But this isn't a healthy rotation. Rather, it's a move out of risk.
Thanks to Trump's back-and-forth policy announcements, economic uncertainty is off the charts today.
A measure of policy uncertainty developed by Stanford University economists shows that things are nearly as unpredictable as they were when the entire world shut down for COVID-19...
When folks are this uncertain, it weighs on their appetite for risky investments.
That means headwinds for assets like bitcoin – which has been trading in a sideways range since a postelection bump in November. Bitcoin traded down below $94,000 today and has been as high as $109,000 on January 20.
(By the way, Crypto Capital editor Eric Wade touched on crypto prices being flat in Friday's video update for subscribers. He said while a contrarian's "smoke detector" might be "going off like crazy" right now with concern, an indicator he trusts signals the world's most popular crypto hasn't hit a "top" yet.)
At the same time, major global economic uncertainty can mean a boon for "safe haven" assets like gold, which is up 15% since November 15.
Matt noted that consumer-staples stocks – typically defensive investments – have also been performing well lately. The Consumer Staples Select Sector SPDR Fund (XLP) is up 5% over the past month. Companies like Philip Morris International (PM), Costco Wholesale (COST), Walmart (WMT), and Coca-Cola (KO) are all up double digits year to date...
This isn't happenstance, Matt said...
[As] tariff talks drag on, inflation surprises to the upside, and the Department of Government Efficiency keeps making unorthodox moves in Washington... investors are retreating into safer assets.
And those who worry about the health of the market tend to move into safer positions before crashes.
While we can't know for sure if this behavior is "right" this time, Matt says it is a sign of investors' waning confidence in the bull market. So he suggests "exercising caution." You can read Matt's latest report here.
One more thing: Our colleague Greg Diamond is going live...
Tomorrow afternoon, at 1 p.m. Eastern time, Greg Diamond – editor of the Ten Stock Trader advisory – will be hosting a live video session on YouTube. It's completely free, and we urge you to check it out.
Greg is a technical trader with a unique strategy, and he always has a plan to trade the market – especially ones filled with uncertainty like today. Here's more from Greg with details on what he's going to talk about tomorrow...
I want to spread the word about my technical trading strategy... Trading can be rewarding... if you're willing to learn and put in the time.
I truly believe that the more people understand that, the more people can improve their lifestyles and get closer to financial freedom.
That's why I'm doing something new...
Tomorrow, at 1 p.m. Eastern time, I'm going to hop on YouTube for a live video session.
What will we talk about? Everything from a day-trading strategy to swing trading, and all things technical analysis. I'll share some of my basic trading lessons with anyone willing to attend. You'll get to see how I look at the markets every day as if you were sitting right next to me...
We'll open up the live chat to questions, which you may find very valuable. If you've got questions about trading strategies, we'll be able to go over them live.
To ask questions in the chat, you must subscribe to our YouTube page. Simply go to our Stansberry Research YouTube page right now and click the big "Subscribe" button.
Then, visit YouTube tomorrow at 1 p.m. Eastern time, and Greg's livestream should appear right on your main page. Check it out and stay tuned for more. We'll try to do more of these live sessions with our team of editors and analysts as the year goes on.
New 52-week highs (as of 2/14/25): Alpha Architect 1-3 Month Box Fund (BOXX), Maplebear (CART), Compass (COMP), Cisco Systems (CSCO), Commvault Systems (CVLT), SPDR Euro STOXX 50 Fund (FEZ), Fortinet (FTNT), Grand Canyon Education (LOPE), Medtronic (MDT), Meta Platforms (META), Neuberger Berman Next Generation Connectivity Fund (NBXG), Annaly Capital Management (NLY), Ferrari (RACE), Rithm Capital (RITM), Republic Services (RSG), and Sprouts Farmers Market (SFM).
In today's mailbag, feedback on Saturday's Masters Series essay from Joel Litman and Rob Spivey of our corporate affiliate Altimetry... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"How about accommodating accelerating Treasury borrowing [as a negative market catalyst]? Broke $2 TRILLION net borrowing increase in [fiscal year 2024]. First third of FY 25 broke over $1.2 Trillion, annual rate at steady pace will break $3.6 Trillion. Sucking a lot of oxygen! Don't believe that's conducive to lower interest rates." – Subscriber Dana G.
All the best,
Corey McLaughlin with Nick Koziol
Baltimore, Maryland
February 18, 2025