The Fed's 'Emergency' Rate Cut Is Far From a Guaranteed Cure
The Fed's 'emergency' rate cut is far from a guaranteed cure... Our meetings in Florida just wrapped up... In-person contact is a novel idea... A super day for health care stocks...
What happens to stocks after an 'emergency' interest rate cut from the Federal Reserve?
As I (Corey McLaughlin) explained in yesterday's Digest, most of our editors and close business contacts traveled to central Florida this week. We're holding our annual Spring Editors' Conference at the luxurious Streamsong Resort in Bowling Green, Florida.
First off, it's simply nice to see everyone in person. And second, it's helpful for generating ideas in the short and long term...
For instance, during dinner last night at a clubhouse restaurant, Michael Lang – a veteran software executive and former stockbroker who oversees our Stansberry Terminal project – posed the above question about the Federal Reserve's history of "emergency" rate cuts...
And given the significance of what the Fed did yesterday... making its first rate cut between regularly scheduled meetings since the 2008 financial crisis... we thought it would be wise to take up Michael's question in today's Digest.
So here we are...
The following chart shows the previous seven times the central bank has unleashed one of these emergency rate cuts – all of which have happened since 1998. And as you can see, these situations have produced mixed results. They don't produce an entirely clear-cut trend...
Having said that, we wanted to highlight four takeaways for Digest readers...
- Stocks, predictably, were down in the two weeks before the Fed stepped in and lowered rates.
- One month later, the benchmark S&P 500 Index was in the green six out of the previous seven times.
- Six months later, the index has been down five times.
- And one year later, the S&P 500 has been down double-digits in five of the seven instances.
Make of these stats what you will. There's not a golden indicator here... but it's important to keep past performances of similar situations in mind when the "unexpected" happens.
Because as we like to say... History doesn't always repeat, but it does often rhyme.
Now, some more context on the Fed's move...
The Stansberry NewsWire team covered the impact of the rate cut in detail in its regular morning commentary today.
Notably, they said Fed Chair Jerome Powell and company cut rates to prevent a drop-off in consumer confidence, which is "the one thing the Fed doesn't want to see"...
NewsWire editor C. Scott Garliss talked about this in yesterday's Digest. As he explained, the Fed believes a rate cut will boost household and business confidence, which should maintain strong consumer spending and support the economy.
Along those lines, the NewsWire team has been banging the "easy money" drum over the past few months to make sure readers hear about the extent to which the Fed and the world's central banks are supporting their economies.
At the height of the coronavirus outbreak in China, the country's central bank injected $244 billion of stimulus into its financial system... And Hong Kong is simply giving 10,000 Hong Kong dollars to its 7 million permanent residents.
What the Fed did yesterday is just another plot point in this trend. As the NewsWire team wrote...
The big takeaway remains the Fed is prepared to support economic growth, no matter what. It continues to tell the markets and investors it has their back.
Expect the other major global central banks to do the same. While the near-term environment will remain choppy, this will continue to provide long-term support for the S&P 500 Index and global stock markets.
On a related note, we don't know many people who follow the news and deliver smart insights more than Scott... As he told the 50 or so members of our editorial staff at our meetings here in Florida today, "I'm reading all the stories that subscribers wish they could, and my wife wishes I couldn't."
Scott and the NewsWire team deliver the insight gleaned from all this work to readers – for free... every single day. If you're not getting NewsWire updates already, you can click here to sign up.
To that end, our meetings here in Florida just wrapped up...
This morning and afternoon, a diverse group of editors presented on the big ideas they're thinking about in their investment universes.
I can't share everything right now (expect more to come in future Digests, as well), but we want to touch on a few fascinating points...
It might seem "off the wall," but Matt Weinschenk – the lead analyst on Dr. David "Doc" Eifrig's research team – showed us just how easy it is to "deep fake" people on the Internet if you have enough recordings of their voices.
It was part of a compelling investment thesis on the idea that people will crave more in-person contact in the future... Imagine that? Face-to-face contact.
This is not a new idea – it's as old as time itself – but in our current Twitter, phone-addicted era, the concept is often forgotten.
Moving on, we need to talk about health care after the 'Super Tuesday' results...
Joe Biden's rising momentum in the Democratic presidential primary has gotten investors' attention when it comes to health care in particular.
That's exactly what Stansberry Research editor Thomas Carroll has been saying for months would happen as the presidential race unfolds this year. Thomas most recently wrote about this idea in the February 21 Digest.
Compared to Bernie "Medicare for All" Sanders, Biden is considered a more "moderate" candidate who is likely to support policies similar to the Affordable Care Act (or "ObamaCare"). In other words, he would stick to the status quo.
In turn, compared to the alternatives, Thomas said if a more moderate Democrat like Biden wins the White House, the result would likely help those health care-related companies that currently work with the government... or are set to be part of the more likely type of reform. From the February 21 Digest...
We'll undoubtedly hear more about health care reform as the election calendar marches forward to November. The current polarizing ideas may begin to meet in the middle.
As we get a better sense of what the future may look like, there will be many investment ideas that present themselves... if you know where to look.
One such company Thomas noted in that Digest as a potential beneficiary if things were to go the more moderate route is health insurer Centene (CNC). As he explained...
Centene started 20 years ago as a small company serving state Medicaid programs.
It's currently a government-focused powerhouse with solutions across many health care needs.
The Super Tuesday primary results were like rocket fuel for health care stocks today. And sure enough, Centene led the charge... finishing the day up 15%.
With that, we're signing off from our conference in Florida...
It's time to hit a few golf balls.
But seriously, as we said yesterday, this annual gathering of editors regularly results in some of our company's most successful recommendations and most popular new services...
So stay tuned for more fruits of these discussions in our services in the coming weeks, months, and years. And as we said, we'll have more coming from what was said here in future Digests, too.
In the meantime, we hope you've enjoyed this "peek behind the curtain" over the past two days.
New 52-week highs (as of 3/3/20): iRhythm Technologies (IRTC), iShares 1-3 Year Treasury Bond Fund (SHY), ProShares Ultra 20+ Year Treasury Fund (UBT), Vanguard Inflation-Protected Securities Fund (VIPSX), and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP).
In today's mailbag... thoughts on the Fed's rate cut and feedback for Ten Stock Trader editor Greg Diamond. As always, if you have a question or comment, e-mail us at feedback@stansberryresearch.com.
"It seems that China will come out of the coronavirus crisis while we in the U.S. continue to potentially overreact. I'm thankful I own some gold and gold miners in a balanced portfolio thanks to your guidance." – Paid-up subscriber Martin M.
"Has anyone else noticed that since December 6th of last year Greg has been absolutely on fire? These last couple of weeks, especially, hot damn! Just awesome, thanks Greg." – Stansberry Alliance subscriber Evan A.
All the best,
Corey McLaughlin
Bowling Green, Florida
March 4, 2020