Getting up to speed on jobs… The Fed’s pre-blackout message… Causes for volatility… Politics, yes… Inflation still matters… The case for bullish caution… One protection plan… A key ‘divergence’…

Let’s catch up…

In the middle of last week, we looked ahead to Friday’s important U.S. jobs report… and the Federal Reserve speakers who were scheduled to follow its release.

Today, I (Corey McLaughlin) want to pick up where we left off.

In short, call it more of the market’s “what to do with this bad news?” story…

On Friday, the monthly “nonfarm payrolls” report for August was “mixed,” at least on the surface. The unemployment rate edged down for the first time in five months, to 4.2%. But the number of jobs added was about 20,000 below Wall Street expectations.

In the same report, July numbers were also “revised” down from 114,000 jobs added to 89,000. So, we’re inching closer to perhaps blatantly obvious contraction territory with the labor market, all while the unemployment rate has already risen from 3.4% in April 2023.

Then those Fed folks spoke…

Before the blackout…

I’m not talking about the energy grid failing. (Though if you haven’t thought of that before, it’s worth a minute of your time… Be sure to listen to Dan Ferris and me on the Stansberry Investor Hour podcast, where we interviewed investor and filmmaker David Tice about the subject.)

Rather, Friday was the last chance for the Federal Reserve members to communicate with investors before the bank’s next policy meeting next week. The Fed folks are now in a media “blackout” period that started Saturday and lasts until after next week’s policy meeting.

Before blacking out, Fed voting members John Williams and Christopher Waller spoke at different events. Their messages combined to indicate a rate cut coming next week, possibly even of the “larger” 50-basis-point variety…

Here was Williams on Friday, just 15 minutes after the jobs report was published, making a snap conclusion on the news…

The data today is consistent with what we’ve been seeing – a slowing economy, a bit of cooling off in the labor market.

And here was Waller, a few hours later, teeing up the idea that anything is possible for monetary policy for the rest of the year. He said…

If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings. If the data suggests the need for larger cuts, then I will support that as well.

Translation: Even if it has a hunch, the Fed isn’t admitting its expectations for how labor-market data will play out over the next few months. But its members are telling people they’re ready to do multiple rate cuts starting now… and perhaps by more than the “standard” 25-basis-point type.

That said, federal-funds futures are pointing to the “less bad” option right now. Traders have put 70% or so odds on a 25-basis-point cut next week. A higher one could shake things up after the meeting, as could Fed Chair Jerome Powell’s likely ramblings in an unscripted press conference.

Stocks sank Friday. The Nasdaq Composite Index led the way, off more than 2.5%, and the benchmark S&P 500 Index was 1.7% lower. Today, the major U.S. indexes moved higher. The S&P 500 and Nasdaq were up 1.2% and 1.4%, respectively.

The CBOE Volatility Index (“VIX”) was close to 20 today. That’s on the higher end of the normal range this market “fear gauge” has been in since the March 2023 regional banking panic.

Expect more volatility ahead…

With the market tied to the Fed’s decisions and musings, investors and traders will navigate a general uncertain state of the U.S. economy in the next few months – with recession concerns in the mix, too.

Remember, unlike at many recent times, we’re now in a place where bad news for the economy can mean bad news for stocks.

I wouldn’t be surprised to see market “fear” perk up over the next month or so, for economic and political reasons. Tomorrow night’s presidential debate between Donald Trump and Kamala Harris could be a near-term catalyst for market action.

As our Ten Stock Trader editor Greg Diamond said in this week’s free Diamond’s Edge video, whoever is perceived as Tuesday’s “winner” could matter in the really short term. So could any significant policy debate, but we’ll see.

If anything, the market tends to predict the winner of the election, not the other way around. (We’ll discuss this tomorrow.)

But Greg also reminded folks this week to keep their eye on the economic ball. That also means inflation data. The consumer price index and producer price index data for August come out on Wednesday and Thursday, respectively. And they still matter…

There’s potential downside risk if these price gauges show signs of deflation. We’ve seen that in some sectors in the past few months. With the labor market already cooling, if you throw a fear of outright lower prices, you can see an ugly economic narrative emerge quick.

We’re ready…

Last week, a group of our editors and analysts gathered at a hotel on the Washington, D.C. waterfront to discuss market outlooks for the next several months… and the opportunities they see ahead. A consensus emerged in the room.

The last time we did this exercise, all the buzz was about artificial intelligence, which was a trend many of us thought still had room to run. But as our Director of Research Matt Weinschenk explained on Friday to This Week on Wall Street readers…

In our meeting this Wednesday, the focus had shifted. Surprisingly, little time was spent discussing tech or the upcoming presidential election.

Instead, the topics of the day were risk management, spotting recession signs, and finding safe, boring stocks to protect and build your wealth through whatever may come next.

We discussed the high returns in areas like construction materials, insurance, and mortgage bonds.

And we heard an outstanding thesis on why we’ll see a true “stock pickers'” market over the next five years.

Matt continued…

The point being, it’s time to stop thinking that the only way to make big returns is through the hottest tech trend… and start looking at company fundamentals to find true intrinsic returns.

Our concerns about capital preservation don’t mean that we think the market will crash immediately. But with the major indexes still hovering near all-time highs and valuations so stretched, it’s time to start thinkingabout protection.

You can be bullish, but you should also be cautious…

You’ll find a lot worse advice than that.

Now, what might being ‘bullish’ and ‘cautious’ mean?

It means being inclined to make money, but not foolishly.

It means being aware of still-nosebleed valuations for mega-cap stocks and other stocks near all-time highs. With recession signals in the mix, more downside for this market could be ahead if things keep going as they have lately.

But being cautious also means being open to other opportunities… and understanding that some of the best long-term investing opportunities emerge in times of economic weakness, so long as you have capital on hand to put to work.

Being cautious also means not getting swept up in “fear.”

In fact, you can use fear to your advantage. Over the weekend, Dr. David “Doc” Eifrig wrote to you about his all-time favorite trading strategy, which is perfectly suited to helping folks profit from other people’s fear.

You might use this strategy already yourself to collect thousands of dollars in income each month – we’ve heard from many subscribers who do. Alternatively, you might shudder at the thought of the word “options.” It doesn’t have to be this way.

Used correctly, options can help protect a portfolio in a “fearful” market in a way that’s similar to selling insurance on a car or property rather than buying it.

Options might not be for everyone. I get that. But if you’re willing at all to try, and you’re looking to add an extra layer of protection or even just a consistent income stream to your portfolio, you won’t find a better guide than Doc to explain all the details.

Click here to learn more in this free demo from Doc right now.

In the video, Doc shows PGA Tour pro and Stansberry Research-sponsored golfer Kevin Kisner – who had zero previous options experience before sitting down with Doc – exactly how this options strategy works. Watch it, and you can decide if it’s right for you.

---

Recommended Links:

MUST SEE TODAY: The Perfect Transaction (94% Success Rate) Since 2010, Stansberry Research has logged a 94% success rate with a trading strategy as close to a holy grail as anything we’ve seen. It’s a way to target the best companies in the market and instantly collect payouts of hundreds of dollars at a time, without ever touching a single stock up front. Click here to learn more (and get a free recommendation to collect $700 instantly). How the Boeing Disasters Could Hit Nvidia Investors You may have heard about Boeing planes falling apart midflight and catching fire. But according to analyst Dan Ferris, there’s something much darker going on here that could threaten Nvidia, the “Magnificent Seven,” and the entire U.S. stock market. Click here for the full story.

---

New 52-week highs (as of 9/6/24): Altius Renewable Royalties (ARR.TO), Alpha Architect 1-3 Month Box Fund (BOXX), Kenvue (KVUE), iShares 1-3 Year Treasury Bond Fund (SHY), Travelers (TRV), Vanguard Short-Term Inflation-Protected Securities (VTIP), and the short position in SolarEdge Technologies (SEDG).

In today’s mailbag, feedback on Dan Ferris’ must-read Friday essay… and the big question of the month… Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

“Dan, I’ve been reading your work since 2011, and this is one of the most insightful, clear, and concise Digests I have ever read, and I have read most of them, including Porter’s classic Friday Digests, for many years…” – Subscriber Jeremy D.

“Corey, It seems pretty likely given the June and July downward revisions in the jobs numbers, not to mention the massive 800k+ downward revision in 2023 numbers, that August numbers will be much lower than reported.

“Does this mean we’re really already in a recession? Given this underreporting pattern is it reasonable to assume the Fed will base the rate reduction decision on a recessionary economic reality… a not so soft landing?” – Subscriber Roy E.

Corey McLaughlin comment: Roy, thanks for the note. I think we are likely at least at the start of a shallow recession, and you name some of the reasons. I also think the chances of a “hard” landing at this point are higher than those of a “soft” version.

That’s one man’s opinion, though. Even if it’s right, an “official” recession call from the powers that be wouldn’t come until well down the road if or when formal GDP numbers start taking a hit.

Either way, though – and more importantly for market behavior and the near-term direction of investments – the market and the Fed seem to be just coming around to the idea of a possible recession… yet enough “market participants” still aren’t convinced.

So we’re still early in this “landing” story yet, and it’s getting bumpy.

I can’t guarantee you where the economy goes or what the Fed will do. But the fact that the central bank is already considering a 50-basis-point cut next week tells you enough about the “economic reality” that Fed members are considering.

I would be surprised if they aren’t taking the “revisions” dynamic into account when making decisions. Powell has also said in the past that he focuses more on private payroll data as an indicator of the labor market overall.

All that said, the economy will do what it will do. When the unemployment rate starts rising, it doesn’t generally just turn around and get better at the first sign of monetary “rescue.” Though we do get more inflation.

On that happy note…

All the best,

Corey McLaughlin
Baltimore, Maryland
September 9, 2024