RJ Hamster
How the Fed’s “Challenging Situation” Could Rattle Your Portfolio…
 How the Fed’s “Challenging Situation” Could Rattle Your Portfolio in 2026VIEW IN BROWSERBY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILYIn This Digest:The Fed admits it’s in a “challenging situation”New rate cuts are a nightmare for saversStocks seem like the only game in town – but be smartWhy 2026 could be the Year of the BearTry our new Flash Crash screener on the stocks in your portfolioThe Fed has a “dissent” problem…Yesterday, the Fed cut short-term interest rates by a quarter point, bringing them down to a range of 3.50% to 3.75%. That’s a three-year low.This comes just six weeks after Fed chair Jerome Powell discouraged investors from assuming a December rate cut was a “foregone conclusion.”Even more interesting than the cut itself were the “dissents” from some of the members of the Fed’s rate-setting committee.Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid voted to hold rates steady. And recent Trump appointee Stephen Miran supported a “jumbo” half-point cut.As I’ve been spotlighting in these pages, the Fed is in between the rock of persistent inflation and a hard place of a softening jobs market. And Powell addressed this dilemma in his presser yesterday:“A very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation, so what do you do? You’ve got one tool; you can’t do two things at once. It’s a very challenging situation.”But with Powell on the way out the door in May and a new Trump-appointed Fed chair coming in to replace him, that dilemma will likely be “solved” by even lower rates.This is bad news for savers…Lower short-term rates mean lower yields on money-market funds and CDs. And with annual consumer price inflation running at about 3%, the “real” savings rate (what you earn after you take inflation into account) is at its lowest point since late 2023.The chart below is of the yield on the 1-month Treasury note, which follows the Fed’s interest rate closely, minus the annual inflation rate.Right now, you earn a real annual yield of just 1.3% for loaning your money to the government for a month.As that incentive to save drops, it could point to continued stock market gains.At least, that is, until something breaks.Note the gray shading on the chart above – those are recessions. One has followed every time this century when the real savings rate has turned down from a positive level.Why?Because lower real yields have been a result of Fed rate-cutting cycles. They don’t cause recessions. But they tend to precede them because the Fed uses rate cuts to assist a fumbling economy.Recommended LinkBuffett Goes to Cash. Tech CEOs Dump Shares. What Do They See?46-year Wall St. veteran Louis Navellier reveals: This isn’t a bull market – it’s the largest wealth transfer in history. His grading system (wealthy firms paid $24K/yr for him to evaluate stocks with it) shows institutions quietly moving money while retail chases AI stocks at all-time highs. Learn about the 7 stocks they’re accumulating now. Click here for the full story.So should you dump cash and buy stocks?In a world where the real savings rate is headed closer to zero, that seems like the only option. That’s the good news for us stock-market investors.The S&P 500 posted back-to-back gains of more than 20% in 2023 and 2024. And it’s up more than 17% so far this year. So it hardly seems like a bad option.But stocks can turn on a dime – and they often do after big run-ups like this.Just look at the period from 1997 to 2000. Annual gains of 32%, 31%, and 25% for the S&P 500 preceded three losing years that took the index down by close to 50%And from 2019 to 2021 we saw something similar happen – with gains of 28%, 15%, and 26% preceding a 26% plunge.These drops happened fast and with little warning. And thanks to the dominance of AI algorithms and wide-open access to fickle retail investors, that risk for market meltdowns has never been higher.Today, 70% to 80% of all U.S. stock trading is done by machines. And according to some estimates, half of those have incorporated some form of AI.These machines can execute orders in millionths of a second — thousands of times faster than the blink of a human eye.And the level of retail trading is rising, too.Before the COVID lockdowns, retail trading made up about 10% of U.S. stock trading volume. That doubled to about 20% in 2020… and reached as high as 26% in the 2021 pandemic boom.And the last five years have also seen the worst bouts of sudden volatility going back 30 years. Outside of the 2008 financial crisis, the 10 biggest daily percentage moves in the S&P 500 over that time have all occurred since 2020.To deal with that kind of volatility, we need a new kind of tool…It’s why we’ve partnered with pioneering “quant” investor Marc Chaikin for the launch of our newest tool.It’s a way to sidestep the kind of sudden, sharp drops in stocks that have become routine.Marc’s first day on Wall Street was Oct. 7, 1966. Back then, the term “quant investor” didn’t even exist.Today, Bloomberg and Reuters carry his Chaikin Money Flow indicator on their terminals. And hedge funds and banks around the world use it to spot shifts in institutional buying and selling pressure.Thanks to the success of these tools, Marc has managed money for Steve Cohen, George Soros, and Paul Tudor Jones — guys who don’t return your call unless you bring a real edge.Marc also has a following more of than 800,000 individual investors worldwide who use his tools to navigate the markets. The cornerstone of which is the Power Gauge, which uses a 20-factor model to quantitatively rate stocks based on fundamentals and technicals.Now, we’re combining each of our strengths – TradeSmith’s in volatility and Chaikin’s in quantitative ratings – to develop our new Flash Crash Alerts.And with what Marc’s saying about 2026, this couldn’t have come at a better time…Nobody has called the market’s recent turns like Marc has…In early 2022, he warned that the post-COVID bull run was running out of steam – roughly 90 days before stocks fell into a bear market.In early 2023, he called for a strong rebound – right before the S&P gained 26%.Then, in early 2024, his S&P projection turned out to be more accurate than more than 20 major Wall Street institutions – calling for a 20%+ gain, while the median forecast was for a 3% return.And in early 2025, he warned of a coming “violent shift” – just before the S&P dropped 19% in the tariff tantrum.When someone with that record sounds the alarm, we listen.And now Marc is warning that 2026 could be a rough year for stocks.In fact, he says 2026 will be the “Year of the Bear.” That means a 20% average drop for stocks… and even steeper losses for some of today’s most popular high flyers.And many investors could be caught off guard by how fast selling can spread.Marc will reveal all during his upcoming Tipping Point 2026 summit with TradeSmith CEO Keith Kaplan. It kicks off next Tuesday, Dec. 16, at 10 a.m. ET. (Sign up here to secure your spot.)The point isn’t to scare you or tell you to sell everything. It’s to remind you that playing defense matters – especially now that short-term selloffs can arrive in a flash.And that’s why we built our latest software tool. Think of it as an “early-warning system” for the stocks in your portfolio.See your own “flash crash” risks – before 2026 arrives…The “tariff-tantrum” plunge in April showed how fast a modern downturn can hit. In a matter of days, algorithmic trading and fear-driven momentum knocked out months of gains.Before the dust had settled, the S&P 500 was down 19% – just a hair off the 20% drawdown that marks the onset of a bear market.That’s why we partnered on our new kind of sell signal that’s more reactive than anything we’ve created before. It can pick up on even the slightest bearish tremor in stocks – to help you stay ahead of these sudden drops,And today, you can take it for a free test drive when you sign up for Marc and Keith’s launch event.You can enter up to 10 tickers into the Flash Crash Screener – any stocks you own or follow – and see whether they’re showing the same kind of short-term stress signals we saw before April’s wipeout.It’s a simple, quick read on short-term risk that you’re going to find hugely valuable.Marc sees tools like this as essential heading into 2026. That’s why he and Keith will walk through the full version of our newest investment tech and show you how it can help you react faster, avoid big losses, and even catch early turns after sharp drops.They’ll be sharing the name and ticker of a stock every investor in America should steer clear of after Jan. 1. And they’ll pass along the name and ticker of a stock every investor should buy before Jan. 1.Everyone who signs up for our VIP list will get free access to a limited version of our new tool. And you’ll be able to test it on stocks in your portfolio before the new year.After three strong years for stocks, this is the moment to pressure-test your positions – not after the next sudden drop takes the market by surprise.Here’s that link again to reserve your spot.To building wealth beyond measure, Michael SalvatoreEditor, TradeSmith Daily |
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