The economy is, at last, slowing… Hedge fund billionaires see rate cuts coming in the first quarter... Record inflows hit bond ETFs... The "yield competition" is ending... and TradeSmith's analysts are ready to buy stocks... What investing strategies do you want to see?
The financial world is one giant, endless disagreement.
One trader thinks stocks are going up, the other down. The bull and the bear both place their bets and we have a market.
This market is an infinite war of differing opinions. A strange war, too – where dollars are ammunition, ceasefires happen every holiday, and a permanent end to the fighting might be the scariest outcome of all.
Today, in a shakeup to our usual format, we'll cover the two predominant investing opinions of today, "recession vs. no recession"... And also share a bit about the moves TradeSmith's experts are recommending to their subscribers.
❖ The latest sign of a slowing economy is upon us...
On Thursday, November saw its third major sign that the U.S. economy is finally set to slow down.
Inflation-adjusted consumer spending rose 0.2% in October, down from a revised 0.3% in September. This comes after the core Consumer Price Index came in a touch below forecasts (3.2% against 3.3%) and new payrolls came in well below (150,000 nonfarm jobs added for the month, against expectations of 170,000).
So, if the economy is set to slow down... and if it dips into recession... both big "ifs"... What to do?
One defensive measure you could take is rebalancing your portfolio toward investments that have a history of doing well in recessions.
The best of these is gold, which has had a positive total return in every recession since 1980. And as we discussed on Friday, gold stocks are looking bullish.
Another good recession investment is Treasury bonds, which are especially attractive right now. With rates high and not likely to move much higher, investors can buy bonds to lock in high, inflation-beating yields and also benefit from capital appreciation as rates come down (which boosts a bond's price).
Of course, this all assumes the "ifs" I mentioned before wind up becoming "whens."
There's another "if" we should keep in mind: the potential for a Goldilocks zone, no-landing, no-recession 2024.
Doomsayers have been flat-out wrong for a year straight. The odds that they will eventually be proven right narrow with every point higher in the S&P 500... and every positive earnings report surprise.
With stocks historically going up about 90% of the time for the past century, the data tells us we should not fight the bullish trend.
Nobody knows for sure what'll happen next. But what I do know is that a lot of smart investors are forecasting conditions that will greatly benefit stocks in the near future.
Take, for example, this guy...
❖ Bill Ackman sees the first Fed rate cut in the first quarter...
Bill Ackman is the founder and CEO of Pershing Square Capital Management, a hedge fund with over $18 billion under management. Just as with any smart billionaire investor with a proven track record, we should pay close attention to what he says.
Most recently he called the bottom in long-term Treasurys about the same time we did, making $200 million for his hedge fund as he unwound his short bets. He was also one of few investors to get heavily short U.S. stocks just before the pandemic panic crash in early 2020.
Now, he's saying the Federal Reserve needs to start cutting rates soon to avoid anything uglier than a soft landing. His precise words were, "I think there's a real risk of a hard landing if the Fed doesn't start cutting rates pretty soon."
Fed rate cuts would weigh heavily on bond yields, which would send the market surging higher.
No surprise that Vanguard's Total Bond Market ETF (BND) surged to $100 billion in assets – the highest ever for a bond ETF since the products were launched two decades ago.
Once again, bonds are really attractive here. Investors looking to participate can either buy bonds directly or buy a bond ETF like BND.
But nothing may benefit more from falling interest rates than stocks...
❖ The "yield competition" is easing for the stock market...
When yields rise, as they have over the past couple years, the potential for a risk-free return in assets like money markets and Treasury bonds grows exponentially.
That draws capital away from stocks, which always presents considerable risk for equity investors.
But when yields fall, and especially when they fall to zero as they did in 2020, there's no risk-free return to speak of. As many like to say, there's "no other game in town" but stocks.
If you want to grow your wealth, it pays to be in stocks in this scenario. Not much else can compete. Especially when high-quality dividend payers start to match the returns of Treasurys with capital gains as icing on the cake.
This dynamic is part of the reason why stocks suffered in 2022 and chopped in 2023. Guaranteed returns from other asset classes made the idea of buying stocks almost foolish.
That's set to change in 2024. And many TradeSmith analysts see the writing on the wall for a huge year ahead...
❖ TradeSmith analysts are busy slamming the buy button...
Jason Bodner is especially optimistic for gains next year. Here's a snippet of what he wrote his Quantum Edge Pro readers last Thursday:
At the end of today's trading, we put a strong November in the books for both the market and our Quantum Edge Pro stocks. This is just the beginning of what should be a strong stretch for stocks through the end of this year and into the first part of 2024.
As you know, I've had my eye on a few stocks for us to add to make the most of what's coming. I mentioned four a couple of weeks ago, and today we want to make our move...
Meanwhile, options expert and Ultimate Income editor Mike Burnick issued a specific trade to his subscribers in the health care sector:
The health care and pharmaceutical sectors could be interesting plays as we shift into a recovery environment, as I mentioned in my 2024 sector forecast, so I spent some time looking through my research in the space earlier this week.
One pharma company stood out to me, well-positioned despite a few headwinds.
Justice Clark Litle, editor of TradeSmith Decoder, is recommending his subscribers "back up the truck" on a few of his favorite gold stocks:
With Federal Reserve officials telegraphing premature dovish signals on top of Janet Yellen's U.S. Treasury gamesmanship and signs of consumer slowdown looming large, it is officially "back up the truck" time for gold stocks once again. So we are buying more.
And Andy and Landon Swan, founders of our publishing partner, LikeFolio, recently issued buy recommendations on three new stocks to their MegaTrends subscribers.
They're focused on highly disruptive names across all types of companies, not just tech. Here's how they put it in their monthly report, just released:
When you invest in a disruptor, you're investing in the future of how we live, work, and play.
Hedge funds and institutional investors have historically had the upper hand in accessing potential disruptors early. But at LikeFolio, we're democratizing access to hedge-fund-level research, bringing individual investors into the fold with insights previously reserved for the few.
The names featured in this report are not just speculative bets; they are the same companies being added to the portfolios of major funds on our client list...
All of our experts hold different investing opinions, use different strategies, and target different businesses depending on the data they see.
But they're unanimous in the thinking that now is the time to place smart bets on assets set to do well in a lower-rate environment. We should take heed.
Before we wrap up today, a quick but important reminder...
❖ What strategies do you want to see?
On Sunday, I sent you a note about a new initiative we're launching called the TradeSmith Research Lab. I asked for your help in figuring out what the Lab should prioritize.
The response thus far has been overwhelmingly positive. It only reinforces what I already knew: that our readers are some of the most sophisticated and sharp investors out there.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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