What's Next? Our Team's Emergency Sit-Down

Stocks waver again... The Bank of Japan signals a reversal... The 'bad news' hasn't changed... An emergency market briefing... Porter Stansberry, Whitney Tilson, and Doc Eifrig sit down together... Don't be 'most people'... A tool to consider...

It was an up-and-down day...

For a while today, it looked like the major U.S. stock indexes would snap back higher for the second straight trading session. But stocks gave back gains from earlier in the day to close down across the board.

The small-cap Russell 2000 Index was off the most, dropping 1.2%. The benchmark S&P 500 Index was off 0.8%, and the CBOE Volatility Index ("VIX") – referred to as the market’s "fear gauge" – was still high, around 28.

Mr. Market is still jittery, even after one of the thought-of catalysts for the recent market volatility appears to have come off the table for now... That is, the Bank of Japan appears to have reversed course on its plans to raise interest rates sometime soon...

Late last week and into Monday, reports flew about the Japanese yen/U.S. dollar "carry trade" unwinding after the Bank of Japan shared "surprise" plans last week to raise interest rates for the second time this year...

That was notable in the sense that Japan had negative interest rates as recently as March and has had artificially low rates for decades since the financial crash there in the late 1980s. Now that Japan has actual inflation, its central bank wanted to raise rates.

Today, the Bank of Japan signaled a pause in those plans...

As the Wall Street Journal reported today from Tokyo...

A week after Japan's top central banker shook up global markets with comments about raising interest rates, one of his deputies walked them back Wednesday and promised not to raise rates when markets are unstable.

The pledge by Bank of Japan Deputy Gov. Shinichi Uchida led to a sharp recovery in Tokyo stock prices and a fall in the yen. That moved markets closer to where they were before the July 31 news conference by Gov. Kazuo Ueda, in which he suggested he wanted to keep raising rates despite lackluster consumer spending in Japan.

In a speech to business leaders in northern Japan, Uchida said Japan wasn't in the position of the U.S. and Europe several years ago, when surging inflation led central bankers to push rates up rapidly.

"Therefore, the bank will not raise its policy interest rate when financial and capital markets are unstable," Uchida said.

The worst one-day sell-off in Japanese stocks since October 1987's "Black Monday"... a 25% fall in the Nikkei 225 since its most recent all-time high... and spillover effects into the U.S. and other markets... I (Corey McLaughlin) would say that qualifies as "unstable."

So, now we're back where we were... with some scar tissue and a reminder about how quickly volatility can hit the market.

In the meantime, though, as part of this mini panic, more investors are reconsidering their impressions of the overall market and economy... A growing number of folks appear to have absorbed the idea that a slowing labor market in the U.S. could have the economy on the verge of recession... and that such a scenario would also lead to possible more rate cuts from the Federal Reserve sooner...

The 'bad news' hasn't changed, though...

As I wrote on Monday, trends that have been becoming more apparent over the past few months – like the unemployment rate rising to 4.3% last month from 3.8% in March – haven't changed...

We've noted the increasing unemployment rate over the past few months and its risks to the market.

A weakening labor market means a weaker "consumer" and less consumer spending, which about 70% of U.S. economic activity is tied to... This means a tougher time for businesses... which is why this rising unemployment rate has many investors concerned about a recession.

"Bad news" became bad news for stocks last week, with troubling labor market data and combined other economic indicators concerning consumer confidence, debt, and commercial real estate.

And while we wrote that Monday's apparent panic – at the idea of interest rates going much lower than previously thought – "could be just that, followed by a bounce and a breather... that doesn't mean the recession risk that caused the anxiety isn't a legitimate fear."

What comes next?...

Of course, that's the question on almost everyone's mind most days in the market, especially now in a period of heightened volatility.

The S&P 500 is down only about 7% since its most recent high... But when you combine the high valuations in the market, the concentration in tech stocks, and the big spike in the VIX on Monday, we're not surprised by anyone who might feel stressed about the markets.

We know many of you are concerned about what's happening in the economy and markets today. It can often feel challenging to keep up with seemingly rapid-fire developments... from the Federal Reserve... Japanese stocks... or anything else...

That's why our team decided to put together a special emergency briefing to cover all the questions that might be on your mind. This morning, our "big guns" got together for an emergency briefing that our production team has rushed to prepare in time for tonight's Digest...

Our founder Porter Stansberry, Stansberry Research senior partner Dr. David "Doc" Eifrig, and Stansberry's Investment Advisory lead editor Whitney Tilson joined our Director of Research Matt Weinschenk for a free-flowing, wide-ranging discussion.

Porter and Whitney even called in from vacations because they thought it was so important to discuss the latest market developments.

After all, Porter recently warned in a Friday Digest that he thought "the 'top' is in for big-cap tech." Doc shared a similar message in his Income Intelligence newsletter last month warning folks against buying Nvidia...

More than $6 trillion has been recently wiped from the market, and some of the most popular tech names were among the biggest losers. So what do Porter, Doc, and Whitney think is around the corner now?

There's a lot to talk about, and we don't think you'll find a better discussion about it all than from us. As our publisher Brett Aitken says in introducing this emergency briefing...

This isn't our first market sell-off.

We helped our members get through the dot-com crash... 9/11... the global financial crisis... the 2010 flash crash... Brexit in 2016... and the COVID crash.

That's why today, in addition to our daily, weekly, and monthly market coverage, I have asked some of our top financial minds to speak candidly about what's happening.

What risks should you watch out for, and how can you best to prepare your portfolio for them? Are there even opportunities to "buy the dip," or is it too early or not the right time to think about it?

How stretched are valuations? What's the deal now with small caps, which had been rallying before the recent volatility? How about the future of the economy, labor market, U.S. debt, or the Fed's plan? Is an "emergency rate cut" coming, and what does that even mean?

Check out this free emergency market briefing with Porter, Doc, Whitney, and Matt now. You can watch it right here...

Revisiting Porter's recent Friday Digest...

Matt opened the proceedings by reading a piece of Porter's July 12 Digest back to him about his concern about the valuation of the stock market today and that a big decline was inevitable, particularly in popular tech names.

About that, Porter said today...

Stocks are historically overvalued. They are trading at levels we've never seen before at any point in market history on various measures, whether it's the Buffett Indicator, or the Tobin's Q factor, or earnings...

It's not hard to imagine that the market is going to be disappointed sooner or later.

And the conversation went from there between Porter, Doc, Whitney, and Matt... Whitney is probably the more optimistic of the group and doesn't think we're in a "bubble," but even he has concerns about a slowing U.S. economy.

Just scroll back up on this page and watch or listen to the whole thing now. It's an unvarnished, largely unrehearsed market insight from our top minds... We'll also share more highlights from it tomorrow and in the days ahead.

Don't be 'most people'...

In the meantime, though, I have one thing to tell you this evening... One of the things our team mentions near the end of the discussion is having a plan to weather a crash or a spike in volatility like we just saw before it happens...

We try to say this as much as possible, but we know most people don't take the advice until it's too late. "Most people" start thinking about what to do after they've already seen significant losses in their portfolio.

Then, with emotions high, they tend to make precisely the wrong decision at the worst time and "sell everything" right then and there... or just as bad, "buy" at the top when the crowd is all jazzed up on the latest craze of the moment.

To which I say, don't be most people.

Unprepared investors panic at a headline or a single opinion... and buy the wrong things at the wrong time. You don't see them follow an investing plan featuring proven fundamentals like proper allocation, position sizing, and predetermined stop losses.

As Porter said today, using the AI boom and hype as an example...

Stock prices more often reflect emotion than they reflect intrinsic business value. The euphoria over the gains in artificial intelligence and the buildout, [which is] probably a once-in-a-lifetime buildout of computer centers, has people forecasting endless years of 100% revenue growth for Nvidia. I suspect that those people will be disappointed.

On the other hand, prepared investors know to see these dangers. Yet they can also look at a day like Monday and see it for what it could be: perhaps a warning sign of more serious trouble ahead, but maybe a signal of an opportunity, eventually. As Porter said...

Stand aside and wait until the market emotion changes. When the market emotion is predominately pessimistic around great businesses, then you get wonderful opportunities to buy them.

Even still, it's hard to know the "answers" and get the timing right.

A tool every individual investor should consider...

Here's one way to navigate whatever comes next, which Porter has been discussing lately. He discussed it during his latest market update (before today's emergency briefing), which debuted last week...

Porter was joined by Keith Kaplan, who runs our corporate affiliate TradeSmith. This firm is trusted by more than 60,000 people around the world and offers tools that are designed specifically to help individual investors protect and grow their stock investments.

One of the things that TradeSmith is most known for is a tool that can tell you "when to sell." Longtime readers are likely familiar with the concept of trailing stops and other stop losses, but if you're not, you should listen to Keith and Porter's presentation for more detail.

Keith explains how "stops" work and provides a complete walkthrough of TradeSmith's most robust tool, Trade360, to put them into action... And he even audits several of our most popular portfolios across Stansberry Research using the tool.

If you want to learn more, you can access the full replay here. Or, if you're short on time, you can skip the video and claim the 60%-off special arrangement from Keith that's available until midnight tonight... right here.

New 52-week highs (as of 8/6/24): CBOE Global Markets (CBOE), Fair Isaac (FICO), Kellanova (K), SolarEdge Technologies (SEDG), and Viper Energy (VNOM).

We'll eschew the mailbag today since our team covered a lot of questions in today's emergency briefing. To those who wrote in overnight with questions, thank you... Please do tune in to the free video to hear our team's up-to-date answers on what's happening in the economy and markets right now. As always, send your comments and questions to feedback@stansberryresearch.com, and we'll address them in future mailbags.

All the best,

Corey McLaughlin
Baltimore, Maryland
August 7, 2024