Thoughts on the Federal Reserve's latest rate decision; Sharing my financial tracking spreadsheet; New evidence on the benefits of GLP-1 drugs
1) For more than two years, I've been saying that the Federal Reserve wouldn't cut rates as quickly as the market was expecting.
That's because I've believed the economy would remain stronger and inflation would stay higher (in the 3%-to-4% range) than the consensus view.
This is a major reason I've remained bullish on stocks. I saw a win-win scenario: Either I'd be right that the economy, and therefore corporate profits, would be robust, which is good for stocks... or it wouldn't be and the Fed would cut rates, which would also be good for stocks.
I've been exactly right so far. But now my view has become the consensus one.
Inflation jumped to 4.2% last month, the highest level in more than three years. So at yesterday's meeting, the Fed kept rates steady. And it indicated it was likely to raise rates later this year.
Here's the Wall Street Journal with the story:
Federal Reserve officials signaled Wednesday that their next move might be to raise interest rates, not cut them, a striking reversal at Kevin Warsh's first meeting as chairman and a sign of how sharply the inflation outlook has turned.
The Fed held its benchmark rate steady, in a range of 3.5% to 3.75%, in a unanimous vote. But officials' quarterly economic projections told the story of the shift: Nine of 19 officials penciled in at least one rate increase by year's end, up from none in March. Just one foresaw a cut, down from 12.
Investors braced in recent weeks for a higher-for-longer posture from the Fed, but this was sharper and reflected how the committee was inching from a watchful hold toward readiness to raise rates. After the meeting, traders in interest-rate futures markets saw a roughly one-in-three chance of a rate increase as soon as next month, according to CME Group.
This is a massive shift from the beginning of the year, as this chart from Charlie Bilello shows:
This is one of many factors making me somewhat more cautious on stocks...
In fact, there's already a "stealth" bear market in many sectors I've written about recently: software, payments processors, financials, healthcare, consumer products, luxury goods, and more.
I say "stealth" because the major indexes are within a smidge of their all-time highs, driven by the SpaceX (SPCX) IPO and bubbles in semiconductor, tech, and AI stocks.
The next two charts, also courtesy of Bilello, show how the semiconductor and tech sectors are reaching parabolic highs only comparable with those in 1999 and early 2000 – the height of the Internet bubble:
As a result, the tech sector's weighting in the S&P 500 Index is now approaching 40% – even higher than the dot-com peak in early 2000 (and we know how that ended):
In summary, I'm not predicting a market crash. I think the economy will remain strong. And with the Iran war seemingly over and energy prices falling, inflation will likely return to the 3%-to-4% range for the foreseeable future.
While this is above the Fed's official 2% target, I don't think there will be more than one or two 0.25% hikes this year. So rising rates won't be a headwind for stocks.
However, I do recommend the following...
Avoid SpaceX, the most overvalued large-cap stock in history.
Avoid the remaining members of the "Stinky Six," which I've renamed the "Frightful Five" – Palantir Technologies (PLTR), AppLovin (APP), Tesla (TSLA), Signet Jewelers (SIG), and Carvana (CVNA). Note that I removed Hims & Hers Health (HIMS) from the list on May 26 – a great call, as it's up 34% since then.
Avoid tech-heavy exchange-traded funds like the iShares Semiconductor Fund (SOXX), which hit an all-time high this morning, and the Invesco QQQ Trust (QQQ).
If you can do so without triggering taxable gains, shift assets away from a traditional market-cap-weighted S&P 500 index fund, such as the State Street SPDR S&P 500 Fund (SPY).
Instead, move them into an equal-weighted index such as the Invesco S&P 500 Equal Weight Fund (RSP) and an international index like the Vanguard Total International Stock Index Fund (VXUS) – see my March 9 e-mail.
2) Another piece of financial advice: Put together a simple spreadsheet to track all of your assets and investments. I made one recently for my parents, which I detailed in my June 9 e-mail.
One of my readers asked if I'd share my Excel template, which I'm happy to do – you can download it here. And here are screenshots:
3) Following up on my May 27 e-mail about the GLP-1 weight-loss drugs ("We are living in Messianic times")...
The latest evidence is clear and compelling that these drugs make a big difference in reducing the occurrence and effects of three of the "four horsemen" of chronic diseases responsible for more than 80% of deaths globally.
These three include cancer, cardiovascular disease (heart attacks and strokes), and metabolic dysfunction (Type 2 diabetes and nonalcoholic fatty liver disease.
Here's a summary of the latest evidence, posted by biomed scientist Avi Roy on X:
With such overwhelming benefits, I think the government should make GLP-1s free for everyone, like it does with flu shots every year and did with the COVID vaccines.
At the very least, we're taking an important first step starting on July 1: The government will make them available for only $50 per month to Medicare beneficiaries who are overweight or obese and have a qualifying comorbidity such as cardiovascular disease, prediabetes, stroke, or uncontrolled high blood pressure (details here).
Eli Lilly (LLY) makes of the best GLP-1 drug – tirzepatide, sold under the names Mounjaro and Zepbound. I think it will be the biggest winner in this category... which is why my team and I recommended it in our flagship newsletter, Stanberry's Investment Advisory.
Subscribers can read our full report here, along with specific buy-up-to advice for LLY. If you're not already subscribed, you can gain instant access to the issue – as well as our archive of past issues and portfolio of open recommendations – by clicking here.
Best regards,
Whitney
P.S. Our offices and the markets are closed tomorrow for Juneteenth. Look for my next daily e-mail on Monday, June 22. Enjoy the holiday!
P.P.S. I welcome your feedback – send me an e-mail by clicking here.