The Best-Kept Secret in Today's Market

The latest clue about the Fed... Higher for longer... Mr. Market still doesn't care... The good news... A singular strategy for any scenario... The market's best-kept secret...

Another day, another financial 'tea leaf'...

Yesterday, I (Corey McLaughlin) wrote about how Treasury Secretary Janet Yellen's comments on television over the weekend might be an early indicator of how the Federal Reserve could handle its interest-rate policy over the next few months...

She might as well have been sending messages with tea leaves when she said last month's bank panic might slow bank lending and the economy enough that the Fed won't have to keep raising interest rates to fight inflation.

Today, we saw another big clue about the Fed's thinking. A notable central bank official went on TV to spread the word about what he thinks may happen next with the Fed's interest-rate policy...

Atlanta Fed President Raphael Bostic said on CNBC he envisions the central bank hiking its benchmark fed-funds rate one more time before pausing "to then take a step back and see how our policy is flowing through the economy."

Now, bear in mind that Bostic isn't among the Fed's 12 voting members this year. But he's a longtime leading voice at the institution.

In Bostic's preferred scenario, the fed-funds rate would settle in a 5% to 5.25% range after the Fed's early May meeting. (This rate is actually a suggested range for banks to follow rather than a mandate of a single number, so that's why we say range.)

And then interest rates could stay there for a while...

Bostic doesn't expect inflation to get to the Fed's 2% goal this year, likely staying in the 3% range at best. So to him, keeping interest rates around 5% would be the appropriate course for the rest of the year to keep slowing the pace of inflation...

If the [inflation] data come in as I expect, we will be able to hold there for quite some time. Once we get to that point, I don't really have us doing anything but monitoring the economy for the rest of the year and into 2024.

That couldn't be a clearer statement. Say what you want about the Fed... but its members do say what they think in a straightforward way, even if you might not agree with it. And they love to talk... Listen close enough and it's fairly easy to read between the lines.

The only thing missing in this Fed official's television appearance was a major qualifying statement... If the economy hits some kind of unexpected crisis – unexpected by mainstream consensus anyway – due to tight monetary policy, any of the above could change. 

To this point, we did hear a little couching in Bostic's words...

It seemed he could have at least read the title of yesterday's Digest... With the recent bank failures not far in the past, he said the banking system he oversees in the Atlanta region is "stable," but "you never know when the next shoe might drop."

True... As the Stansberry's Investment Advisory team wrote in this month's issue...

All the dominoes from the banking crisis haven't likely fallen yet. Small banks, for example, have seen record outflows of deposits over the past four weeks – and consequences are bound to follow.

In the Fed's latest meeting in late March, Chairman Jerome Powell said the banking crisis will likely lead to tighter credit conditions. That's bad news for our economy. As we explained last month, credit is already tighter than at any time since the last financial crisis.

Meanwhile, the labor market is still strong and inflation still high.

So, again, don't be surprised if interest rates throughout the economy – all of which indirectly or directly take their cue from the Fed's bank lending rates – head a smidge higher, then stay there. That's the case at least until further notice or more tea leaves emerge.

Nobody has a crystal ball...

But if you can understand what might happen in the future and weigh the risks and rewards in the context of your investing goals, you can prepare accordingly to protect and grow your investments in this (and any) environment.

Consider the possible outcomes... Maybe the market ends up reacting to the idea of rates staying higher for longer (again) – as opposed to the cuts enough investors believe are coming later this year.

As of today, according to the CME Group, the "smart money" traders of fed-fund futures believe there's only an 8% chance that the Fed's benchmark rate will be in a range of 5% to 5.25% come December.

The leading bet right now among this group is for rates to be 25 basis points lower by the end of the year than they are today... If these expectations significantly change to "no cuts till 2024," the recent rally in stocks could lose steam.

As Dan wrote recently in the April 6 Digest...

The bond market believes the Federal Reserve can cause a recession. The stock market seems to believe that recession or not, the Fed can keep stock prices propped up by cutting rates.

One or both of those groups must be wrong. But both the Wall Street "smart money" and Mr. Market can't be right.

Alternatively, there is a chance the U.S. indexes will simply chug along sideways as the Fed's "hold steady" plan doesn't come as much of a surprise as it might appear...

Or, finally, maybe unforeseen events push the Fed to cut rates earlier than folks like Powell and Bostic say. That's entirely possible, and if it happens, that means the economy is in bad shape. And Fed rate cuts have historically preceded every bear market bottom since 1955.

For any of these cases, there is a singular strategy worth considering today...

As Stansberry Research partner Dr. David "Doc" Eifrig has been saying lately, given the path of interest rates lately, he hasn't seen a better opportunity to collect income through owning shares of high-quality companies in many, many years...

Whatever direction interest rates or stock prices take, for that matter, the type of recommendations Doc is suggesting right now will benefit one way or another.

Conversely, this also means there are other stocks to avoid in today's climate. As Doc wrote in his free Health & Wealth Bulletin newsletter just yesterday...

If you've ever thought of becoming an income investor, now is the time to start.

My team and I believe we are approaching a new enlightenment for income investors.

Yields are up across the board. There is a lot of safe income to be made, and we want a piece of it.

But here's the key thing: If you don't understand how to make this market work for you... you're going to get badly burned.

In his brand-new video presentation, which debuted last week, Doc shared what he thinks is the market's "best-kept secret" – a simple way for you to take the worry out of your investing... tune out the noise in the markets... and get paid. As Doc said...

It's a way to collect a nearly 8% yield today, plus capital upside. Not bad in a down market.

Plus, you'll hear a whole lot more from Doc and our Director of Research Matt Weinschenk about what's going on in the markets today and why, where they think rates are going next, and what that means in simple terms. As Doc said...

If you've never understood interest rates... inflation... or the Federal Reserve... and why they all matter – you will after you watch my critical retirement update in plain, simple English.

If you missed Doc's video, click here to watch it now. It's totally free. And just for tuning in, you'll hear the name and ticker symbol of the stock that can pay you nearly 8% even before any capital gains. It's the sort of return on investment you can find in today's market.

(And Stansberry Alliance members and Doc's existing Income Intelligence subscribers, you are welcome to watch the presentation, but you also have access to this recommendation and a collection of others and a pair of related new special reports right here.)

New 52-week highs (as of 4/17/23): AutoZone (AZO), CBOE Global Markets (CBOE), Copart (CPRT), Lonza (LZAGY), McDonald's (MCD), Novo Nordisk (NVO), NVR (NVR), O'Reilly Automotive (ORLY), Palo Alto Networks (PANW), PulteGroup (PHM), Raytheon Technologies (RTX), Stryker (SYK), Teck Resources (TECK), Zimmer Biomet (ZBH), and Zymeworks (ZYME).

In today's mailbag, feedback on yesterday's Digest, in which we talked about the next shoe to drop in the economy and inflation (again)... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Inflation isn't how they describe in the economic reports. Things don't evenly increase in price each month, at least noticeably. Traveling last month through the Calgary airport, the only dinner option before a red-eye flight was a $15 Subway sandwich that I swore used to cost $5. Guess I better start packing those bulk almonds in my carry-on." – Paid-up subscriber Beau E.

All the best,

Corey McLaughlin
Baltimore, Maryland
April 18, 2023