What to Make of the Stock Market Right Now

A last-minute reminder... More wild swings... Sharing our notes on the Fed... Three signs of market 'fear'... Why you should buy the dip... What to make of the stock market right now... Steve, Doc, and Matt hit the stage tonight...

We begin today with a last-minute reminder...

Tonight is the big night...

In less than two hours, Stansberry Research partners Dr. Steve Sjuggerud and David (Doc) Eifrig, along with Director of Research Matt Weinschenk, will sit down to discuss what's in store for markets for the rest of 2022... and how best to prepare your portfolio.

Talk about good timing for an event like this, which we've held for the last five years.

After a mostly bullish 2021, the major U.S. indexes are in the midst of a 10%-plus sell-off... It seems everyone is worried about inflation... And a lot of people are wondering what to do with their money now to grow and of course protect it.

Steve, Doc, and Matt have a few ideas. Be sure to tune in at 8 p.m. Eastern time to hear what they have to say...

I won't give away their takes here in the Digest right before their big event ‒ that would spoil the fun ‒ but just know that after you hear them talk, you'll find there is a path forward to investing in these crazy markets... and one that will help you sleep well at night.

Tens of thousands have registered.

You can too if you have not already done so... Click here to sign up for the event. It is totally free. Plus, just for listening tonight, you will also get a free stock pick each from Steve, Doc, and Matt – three total – to consider for the year ahead.

Moving on, to the wild daily swings in stocks we've seen lately...

We saw more of the same over the last two days.

Today, the S&P 500 Index and the Nasdaq Composite Index ended the day slightly down, but the final numbers don't tell the full story...

Stocks gave back early gains for the second straight day to close in the red...

More relevant is that today marked the fourth straight day of a significant intraday shift, from positive in the morning to negative in the afternoon or vice versa, like what happened on Monday and Tuesday...

Yesterday, markets were higher much of the day... The S&P 500 and Nasdaq were each up about 2%... but saw another intraday "reversal" in stock prices. The S&P 500 ended down a little bit... and Nasdaq finished up a fraction...

Wednesday's swing had to do with news from the Federal Reserve...

The string-pullers of the central bank closed their latest meeting yesterday... and Fed Chair Jerome Powell spoke to the media in the afternoon, disclosing what members talked about.

You can listen to the whole thing here if you want to "see how sausage is made," but I can save you some time to go enjoy a cocktail or do today's Wordle instead...

Basically, Powell all but said the central bank is moving forward with its plans for policy tightening soon...

We should expect a raise in the Fed's overnight lending rate following its next meeting in March... The bank will stop its bond and mortgage-backed security purchases then, too... It will start trimming its $9 trillion balance sheet sometime after that...

The reason for this is simple – inflation is running hot and the unemployment rate (of people looking for a job) is low.

Keeping these two things stable is the Fed's mandate from Congress, so the bank is going to start making policy moves that could slow inflation... or at least trick people into thinking that what it does will slow it.

As our Stansberry NewsWire editor C. Scott Garliss wrote yesterday after the announcement...

The Federal Open Market Committee ("FOMC") said domestic employment and economic activity continue to strengthen. It noted the supply picture remains out of balance compared with demand, resulting in sustained upward pressure on inflation...

The pace of asset purchases will drop to $30 billion per month in February ($20 billion in Treasurys and $10 billion mortgage-backed securities) in early March. The guidance would fit with raising interest rates at the FOMC meeting on March 15 to March 16.

To anyone who has paid attention, these moves are totally expected... But then Powell took questions from the media, and he said some things that I, at least, wasn't expecting...

Emptying our notebook from Powell's press conference...

He spoke for almost an hour. Four things caught my attention...

1. Powell was not concerned about recent stock market movement. In fact, he called it "appropriate" given what the Fed has indicated it plans to do this year.

"You have seen that our communication with the markets is working," he said. "Markets are now pricing in a number of rate increases."

2. The artist formerly known as Mr. Transitory is now called Here to Stay... Powell now says inflation could remain higher, for longer, and that the Fed will have to adjust policy accordingly if it does.

He said the question is not going to be if there is higher-than-usual inflation, but how much higher.

"Inflation risks are still to the upside," he said. "There's a risk that the high inflation we're seeing will be prolonged. There's a risk that it will move even higher."

Since the Fed's December meeting, Powell said the "inflation situation is about the same, but probably slightly worse... It hasn't gotten better. And that's been the pattern."

3. He doesn't expect global supply-chain issues, a contributor to inflation along with fiscal and easy monetary policy, to be resolved until at least next year.

"We're not making much progress," Powell said. "Things like the semiconductor issue, they're going to be quite a long time. I would think they'll go more than through 2023."

Of course, Powell doesn't know for sure – remember, for the longest time, he said these issues would end by the end of 2021 – but the fact that the Fed chair thinks global supply-chain problems will be an issue for two more years is significant.

4. And I can't stop thinking about this final comment...

Powell said he recognizes inflation is a big problem for those living on fixed and low incomes because they are "prone to suffer more" from higher prices for necessities. He sounded like he actually cared.

But then later, in response to a question about if the Fed did "too much" stimulus back in March 2020, he described the fragile state of the financial system back then... He said: "We're managing the relatively high-class problems that come with that, which are inflation and a labor shortage." Here he sounded like a former, out-of-touch investment banker.

We can't say for sure what the world would look like if the Fed had done less during the onset of the pandemic – like give out fewer trillions of dollars – but this comment shows how leaders like Powell don't consider the long-term consequences of anything as much as we would like to imagine they do... and are often isolated from Main Street.

Whether these things, or others, raised eyebrows from other people who were hitting "buy" or "sell" yesterday, I can't say for sure, but by 3 p.m. Eastern time, as Powell wrapped up his press conference, markets had reversed the uptrend they were in to start the day.

At the very least, these ups and downs mean there are enough buyers and sellers out there who aren't in agreement about what to do now...

If you're wondering what to make of this volatility, you're not alone...

This is stuff we haven't seen in a while.

When you see a 10% drop in stocks in a few weeks, it's not easy to stomach... I get caught up in it like anyone else.

But it's also easy to forget the major U.S. indexes were at all-time highs not all that long ago and things have been bullish for almost two years... We've seen small pullbacks here and there, but each time stocks have snapped back higher.

If something like the sell-off we've seen didn't happen around now, there would likely be chatter about that, too...

In any case, you might not want to join the 'herd' that's panicking...

That's the message that our colleague Jeff Havenstein, an analyst on Doc's research team, shared yesterday in Doc's free daily Health & Wealth Bulletin. As Jeff said...

Despite the insane amount of volatility over the past couple weeks, I am here to tell you not to panic. In fact, I'm going to tell you that today's market sell-off is actually a terrific buying opportunity.

Jeff then gave a couple reasons why he doesn't think folks "should give in to fear and follow the herd by selling." Quite the opposite... As Jeff wrote...

Bearishness is at an extreme right now. And anytime we see the vast majority of investors doing one thing, the opposite tends to happen.

He then shared two charts from Doc's latest issue of Advanced Options, published on Monday, that show this...

One is from the American Association of Individual Investors ("AAII"). For more than 30 years, each week this organization has asked individual investors what direction they feel the stock market will be in the next six months. As Jeff explained...

Historically, members are pretty evenly split between feeling bullish, neutral, and bearish – though they've been more bullish than not. Over the past few weeks, however, AAII members have been overwhelmingly bearish. Take a look...

These latest survey results are the most bearish we've seen in the past 12 months.

Jeff then shared another sentiment indicator from investment bank Goldman Sachs, which shows similar bearish sentiment. He wrote...

This measures how far stock prices are outpacing fundamentals. Today, it's at an extreme low...

Jeff then added a look at a third indicator that longtime Digest readers should be familiar with... the Chicago Board Options Exchange's ("CBOE") equity put/call ratio, which measures sentiment in the options market.

Think of this as looking at the "analytics" of the stock market... and options activity.

When traders are pessimistic and scared of market drops, they often buy put options for protection... betting on lower prices. They do the opposite when they are bullish.

Today, the put/call ratio is at a 12-month high, meaning more puts are being bought relative to calls than any time in the last year...

On balance, options traders are very bearish today...

According to Jeff, extreme highs in this ratio often make for good opportunities to buy stocks.

Likewise, extreme lows tell you many in the market are being greedy.

In the above chart, look at the ratio in November 2021, right as the Nasdaq started selling off from all-time highs. It was at 0.36, one of the lowest readings since 1999.

Jeff concluded with a timeless tip...

Again, anytime we see the vast majority of investors doing one thing, the opposite tends to happen. So while investors are fearful and bracing for more volatility, it's likely stocks will rebound.

I think today is a great opportunity to "buy the dip" and scoop up shares of your favorite stocks. Of course, stocks could fall a bit further from here... but it's still an excellent entry point.

This makes a compelling case that the sell-off that's starting 2022 is a good buying opportunity if you're a long-term investor.

In the short term, though, we could see more volatility...

Our Ten Stock Trader editor Greg Diamond continues to track this latest movement closely before recommending any new trades. Subscribers can catch his latest updates here...

If you'd had your eye on adding shares of high-quality, capital-efficient businesses that can withstand inflation and other factors... now might be a good time to act.

We also know a lot of people are worried about the bottom falling out of the market – and for good reason. And we know no matter how often someone says, "don't panic," that tends to make folks at least think about panicking.

Yet at the same time, all this said, we know it's hard to take the next step... not only to decide what stocks to buy, but how much and when. And it's even harder to actually hit "buy."

As the bewildered, Goldfish-eating family member over my house the other night said... "I'm not smart enough to know when to buy."

Foolishness, I say! Nobody is born with the skill of managing an investment portfolio. You need to learn it...

The good news is we can offer a solution...

The essence of our work here at Stansberry Research comes from our editors and analysts... They keep track of economic trends, vet the fundamentals of stocks, set stop-loss levels for them, and carefully suggest position sizes for a reason.

Markets don't always go up, as much as some talking heads or social media "influencers" might tell you... Sell-offs happen frequently, yet they are not easy for most people to navigate.

Having someone ‒ or better yet a team of someones ‒ to guide you through the ins and outs of portfolio management might be the best guidance anyone could ever give you... It's also the piece of advice that most people ignore the most.

Don't be one of those people... If any of this sounds new to you, or even if you have been around the investing game for a while and want a refresher, be sure to tune in to Steve, Doc, and Matt in less than two hours.

It will be time well spent. Click here to join them.

How to Navigate This Volatility

U.S. stock prices have been swinging wildly... and fear is gripping the markets... Our Matt McCall dives into the action in this new episode of Making Money With Matt McCall and discusses what the recent volatility means for stocks going forward.

This show is all about the big picture – how to navigate what is a very volatile and stressful market environment. It's a must-watch episode...

Click here to watch or listen to this episode right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 1/26/22): Telekomunikasi Indonesia (TLK).

In today's mailbag, a subscriber writes in with thoughts on what the Federal Reserve can and can't do about inflation... Do you have a comment or question? As always, send your notes to feedback@stansberryresearch.com.

"The real economic magnitude of the widely discussed Fed rate hikes would be trivial and have no meaningful impact on inflation. Demand led inflation for products that require large bank loans (housing developments, commercial capital equipment, corporate real estate, corporate vehicles pools) are only meaningfully sensitive to high interest rates.

"The problem is: 1) high rates do not mean three or four Fed rate hikes but rather 30+ rate hikes (8-10% interest rates) so only those already bankrupt firms on life support will be bothered by the level of rate hikes under Fed discussion; 2) three or four (1/2-1%) rate hikes will have negligible impact on typical already outlandish consumer rates; 3) will have no influence on wage increases which are substantially smaller than inflation (the wage/price spiral is B.S.); 4) rate impacts on margin, or other stock purchase decisions are immaterial to real GDP (except for spillover effects into the real economy).

"So the only possible meaningful impact on the real economy will result if Fed rate increases induce illogical panic bond and stock selling, with the large losses impacting real GDP spending as per 1929." – Paid-up subscriber Kendrick M.

All the best,

Corey McLaughlin
Baltimore, Maryland
January 27, 2022