The 'Bull Market Genius' Days Are Long Gone
It's that time of the year... What happened and what's next... The jobs market is starting to roll over... How much or how little of a recession?... The dollar is breaking down... A theme for 2023...
It's a time to reflect and look ahead...
As of today's close of the New York Stock Exchange, there are only 20 trading days left in the year. In other words, 2022 is almost gone...
With the cold weather settling in and the holidays ahead, this time of year always makes me (Corey McLaughlin) reflect on the year that was – to step back from the day-to-day and look at what really happened – and look ahead to what may come in the next 12 months.
When it comes to the economy and markets – our focus in the Digest – we've obviously been in a bear market and have seen a record down year for the conventional stock-bond portfolio. High inflation persisted and the dollar strengthened all year.
Plus, the biggest war in Eastern Europe in decades broke out and is still ongoing, raising fears all over the world and resulting in massive casualties on the ground in Ukraine. No matter how your portfolio fared amid all the volatility, it's time to look ahead...
What happened in 2022 (so far) is in the past. If you've taken the steps to protect your capital that we suggested throughout this year, it's time to start thinking about switching gears to prepare to take more action – and grow your wealth in 2023.
I'm thinking about a few big ideas...
The economy and various sectors of the markets are facing a lot of unknowns right now. And uncertainty means volatility for stocks (which can be good or bad). Could the next 12 months be a straight shot higher for the markets? Sure, but it looks unlikely.
A few big topics are on the table...
First, what will be the path of inflation? And how much will the economy slow as a result of the Federal Reserve's higher-interest-rate policies? Specifically, will we see a deep recession or a grinding, depressing period of stagflation (with relatively high inflation and little or no growth)?
Right now, it looks like Wall Street is leaning toward somewhere in the middle. The major U.S. indexes have rallied since official inflation data appears to have peaked. But new market leaders are not the flashy growth names of the past decade.
Instead, "boring" sectors like materials, energy, consumer staples, health care, and insurance – all of which represent products and services that people tend to feel they need no matter what they cost – have been outperforming lately.
Meanwhile, the bond market is still giving out big warning signs to anyone who will listen. As of two days ago, more than 80% of the U.S. Treasury yield curve is inverted, according to Jeffrey Kleintop, chief global investment strategist at Charles Schwab.
That means out of all the different comparisons possible with Treasury durations – from 1-month bills to a 30-year bond – 80% of the combinations feature a shorter-term yield that is higher than a long-term one. As we've said many times before, that is historically a strong recession indictor.
I can't tell you exactly what will happen, but I'd be stunned if we hear news about any job growth in 2023...
Companies like Meta Platforms (META) that first paused new hiring earlier this year are now laying people off... and job losses are starting to mount.
According to fresh data from major staffing firm Challenger, Gray & Christmas, U.S.-based employers announced 76,835 cuts in November, a 127% increase from the 33,843 cuts announced in October and 417% higher than November 2021.
In the tech sector, November's roughly 53,000 job-cut figure is the highest monthly total for the sector since the firm began keeping detailed industry data in 2000. Plus, the overall job market is beginning to cool off...
As our Stansberry NewsWire editor C. Scott Garliss reported yesterday, the number of job openings in the U.S. economy is trending down from its peak earlier this year.
Yesterday, the U.S. Bureau of Labor Statistics ("BLS") released its Job Openings and Labor Turnover Survey for October. The number of job openings came in at 10.3 million, matching a low from August. As Scott wrote...
The current tally is also back to the level of job openings seen in June of last year. This continues the downtrend that has been in place since March, but the rate of decline appears to be accelerating...
This number of openings, along with the number of job openings per unemployed person, are two indicators the Federal Reserve has been watching closely to gauge whether the labor market is cooling off, which could dictate its interest-rate policy moving into 2023.
Yesterday's BLS report showed there are roughly 1.7 available jobs for every unemployed person (someone looking for work), down from a tally of 1.9 last month and around 2 earlier this year. In other words, the jobs market is starting to weaken...
If it gets weaker, this could present an issue... especially when you consider that stimulus checks are a distant memory, mortgage loans are already generally twice as expensive as they were a year ago, and the price of food and other essentials are still rising faster than people's paychecks.
All in all, it's what the Fed wants to see in its effort to curb 40-year-high inflation. But the outcome could be a terrible situation for Main Street and an economy that is powered by 70% consumer spending...
When enough people lose their jobs, the unemployment rate rises, and that's when the economists and the Federal Reserve will acknowledge a recession.
A big question is how much of a recession has been 'priced in' to stocks already?
For most of this year, Wall Street investors were obsessed with inflation and the Fed's rate-hike plans. The central bank has raised rates higher than the mainstream expected. And every time its plan become clear, stocks sold off...
Yesterday, at a financial conference, Fed Chair Jerome Powell said the Fed could slow its rate hikes to a 50-basis-point raise early this month. Much of Wall Street expects a "terminal" rate close to 5%.
Now, more people are beginning to comprehend the results of the rate hikes. Wall Street analysts' earnings estimates for 2023 are still projecting growth, on balance... which leaves room for downside for stock prices.
The jobs market and earnings will be big topics of discussion in 2023, but there are a few other ideas to consider, too...
The end of the U.S. dollar's bull run...
The strength of the U.S. dollar this year compared with other leading world currencies has been a huge trend. A relatively stronger dollar means everything denominated in dollars faces a huge headwind – be it stocks, gold, or cryptos.
The good news for all those assets is that very recently, the strong dollar trend has broken down... Today, the U.S. Dollar Index ("DXY") is below its 200-day moving average – a simple measure of a long-term trend – and down 7% since its October 12 high.
When you combine this breakdown of the dollar's long-term trend with signals from the bond market, job losses only beginning to mount, and signs of a bottom in the broader stock market, it can be a confusing time...
But it can also be an opportunity to improve your position during whatever comes next.
If you prepare the right way, it really doesn't matter if there's a big crash or boom next year. What matters more is whether you're positioned in the right sectors or vehicles for today's environment.
We've been harping on this point a lot lately because it's important...
There will be winners in 2023 and there will be losers. I can guarantee that. But it's unlikely to resemble the easy-money boom times of late 2020 and early 2021... and it might be more difficult to identify them.
That's where we come in... Over the past week or so, we've pointed you in the direction of Dr. David "Doc" Eifrig's most bullish idea right now. (Alliance members can find all of his research on that here).
Our friend Marc Chaikin at Chaikin Analytics has long sought to identify the strongest sectors and the best companies to buy and which to avoid – or even bet against.
Now, Joel Litman, founder of our corporate affiliate Altimetry, has done something similar using his own proprietary methods. Right now, Joel is sharing the names of three sectors that his systems say will likely crash in 2023... and three other sectors that are best positioned to soar.
It's that kind of time. The days of the bull market genius who could pick any stock and watch it grow are long gone.
And within those three sectors, Joel has picked the very best stocks he believes folks should own right now as part of a brand-new model portfolio. If you're interested in learning more, click here.
But no matter what, as we get closer to closing the door on 2022, we're in an environment where it pays to be picky, do the research, and weigh the possible outcomes to come out stronger than most other individual investors. And we'll keep working to get there.
'Embarrassed' Mr. Wonderful Gets Candid on FTX
"The FTX collapse is going to have some peripheral damage," says Kevin O'Leary, star of ABC's hit TV series Shark Tank, who was invested in the FTX crypto exchange. "All of us at the cap table have spoken, and we're stunned. And we don't have any answers yet."
Click here to watch this episode of the Daniela Cambone Show right now. And to catch all of our videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 11/30/22): Automatic Data Processing (ADP), AutoZone (AZO), Bristol-Myers Squibb (BMY), Cintas (CTAS), Flowers Foods (FLO), Gilead Sciences (GILD), General Mills (GIS), Novo Nordisk (NVO), O'Reilly Automotive (ORLY), RenaissanceRe (RNR), iShares 0-3 Month Treasury Bond Fund (SGOV), and Travelers (TRV).
In today's mailbag, feedback on yesterday's Digest about what to make of history... and a little more discussion about the Fed... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Hi Corey, You said, 'But some things remain constant, like the importance of a business's fundamentals over the long run and human emotions (like fear or greed).' It may be more helpful to think of these emotions in broader terms like 'human nature.'
"This drives everything, but it just manifests itself in different ways. And the ways in which human nature presents itself depends on what mechanisms are present in such era (fire, clubs, gun powder, steel, electricity, chemicals, internet, social media...) and now what's next?
"Understanding human nature means we can see more similarities between 1930 and the present, than we could find differences." – Paid-up subscriber Bill W.
"Regarding the comments from Greg G., everything he says is true, about current situations being different. One issue, however, has been omitted from the conversation: sentiment. The human psyche and the behavior of large groups has been substantially unchanged for eons. More than anything else, it is sentiment that moves markets. Today that can happen faster, and in different ways, than decades ago. But evolving sentiment is still the same. Market averages and their movement remain very similar to those of past years." – Paid-up subscriber Norm R.
"Response to feedback from Jim L. regarding the 'Fed pissing in the wind': Unfortunately, it's a tailwind for them. We need the umbrellas." – Paid-up subscriber Gary S.
All the best,
Corey McLaughlin
Baltimore, Maryland
December 1, 2022