The Weekend Edition is pulled from the daily Stansberry Digest.
Hello, September...
You brought with you the most significant down day for the major U.S. stock indexes since the mini panic a month ago.
On Tuesday, the benchmark S&P 500 Index fell about 2%. The tech-heavy Nasdaq Composite Index dropped 3%. And the Dow Jones Industrial Average was down 1.5%.
What some call the market's "fear gauge" – the CBOE Volatility Index ("VIX") – spiked above 20, its highest level since the rush of fear in early August.
The calendar has turned a page – and brought with it more volatility. Today, we'll consider what this might mean for stocks and the economy.
What's the "why?"...
Longtime readers know I hesitate to attribute broad market performance to "just one thing." People (and computers) make millions of buying and selling decisions for all kinds of reasons.
However, we do like to point it out when a pattern appears to be driving enough action or sentiment. I'll cite one of Tuesday's top headlines on CNBC, which said stocks were falling to start September "as slowdown fears pick up again."
Looks like it.
A few weeks ago, I wrote about troubling signs from a widely followed leading indicator of manufacturing activity in the U.S. I'm talking about S&P Global's Purchasing Managers' Index ("PMI").
At the time, its August release showed numbers consistent with a "contraction" or a recession. This appeared to me to be a catalyst for a down day for stocks.
The fall on Tuesday was more of the same...
This week, the Institute for Supply Management ("ISM") released another look at manufacturing. Only 47.2% of those surveyed reported "expansion" for the month of August.
"Contraction territory," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, which publishes the research. He noted the contraction wasn't as slow as July, but that "demand continues to be weak output declined."
There's also the not-so-insignificant matter that the Bank of Japan is once again raising the specter of an interest-rate hike. Per Bloomberg...
Bank of Japan Governor Kazuo Ueda reiterated Tuesday that the central bank will continue to raise interest rates if the economy and prices perform as expected by the BOJ, a comment that supported further gains in the yen.
The Japanese central bank has kept rates negative – yes, negative – for years. But it raised them for the first time in 17 years in March as inflation ticked higher in the country. It made another tiny hike in July, which brought a key short-term interest rate to around 0.25%.
Then came a surprise. The Bank of Japan sent more signals that it was ready to keep raising rates. Japan's stock market sold off by about 12% in a day – its worst one-day performance since Black Monday in 1987.
That was a catalyst for last month's panic in U.S. stocks as well. Global investors who depended on a weak yen for "carry" trades began selling indiscriminately to cover their positions.
Bank of Japan officials then pumped the brakes, at least publicly, on the idea of higher rates... But now it appears they are back on the table.
In other words, if you're concerned about the relationship between the yen and the U.S. dollar, the Bank of Japan is telling you it's time to pay attention again.
It's looking almost like early August all over again...
Just like a month ago – when the widely-followed monthly government "nonfarm payrolls" report showed a 4.3% unemployment rate for July – many investors are also (rightfully) still obsessing over labor-market data.
On Friday, we saw key August numbers. The reported unemployment rate edged lower to 4.2% in August, breaking a streak of four straight months of increases. But the longer-term trend for the jobs market is still "weakening" since a 3.4% rate in April 2023.
Later this month, the Federal Reserve meets to decide on its benchmark lending rate...
The market is convinced the central bank will lower the federal-funds rate. But traders and investors are weighing whether the Fed will do it by 25 or 50 basis points.
We're getting to the point where the bigger the monetary-policy "rescue" that is deemed "needed," the more volatile the market can become. A larger "cut," or the idea of one, could spook investors in the short term.
We're also seeing fear in the economy on the ground...
Dollar General (DG) reported quarterly results last week – and shares were down an astonishing 32% on the news.
The dollar-store chain beat consensus revenue estimates. But its profits slumped by more than 20% year over year to $550 million. And it cut its sales and profit outlook for the year. The company said it expects same-store sales to be up only by 1% to 1.6% in 2024... lower than its previous projection three months ago of 2% to 2.7%.
While announcing the results in a public release, CEO Todd Vasos said...
We believe the softer sales trends are partially attributable to a core customer who feels financially constrained.
You think?
It's also interesting that Dollar General said same-store sales actually increased from the previous quarter because of more foot traffic. But the company said this good news was "offset by a decrease in average transaction amount," meaning people are spending less per visit.
Dollar General's earnings show that lower-income Americans are hurting financially...
Dollar General runs small-format discount stores, with 20,000 U.S. locations (including 20 here in Baltimore alone). Some think of the stores as much smaller Walmarts for folks who can't get to a Walmart.
When more people go to Dollar General but spend less per visit, it doesn't bode well for what's going on in towns and cities across the country.
Some parts of Wall Street apparently think the same. Dollar General's quarterly report also dinged shares of the competing Dollar Tree (DLTR) by 10%.
We've also seen more Americans fall behind on their credit-card bills...
That's another sign of financial strain for everyday Americans. And it's a signal of potential further slowdown in consumer spending – which makes up roughly 70% of the U.S. economy.
The Federal Reserve Bank of Philadelphia published a report last month and the following was the first line of the executive summary...
The share of credit card balances past due reached the highest level since the start of the data series in 2012.
Now, the folks at the Fed aren't making decisions based on the buying habits of dollar-store customers.
But their perception of a weakening "consumer" may be part of the case for interest-rate cuts. And that means Fed "help" should be on the way.
As for what this means for the markets...
Mr. Market has liked the idea of Fed intervention – so far. The bearish news from Dollar General could be a perversely bullish signal.
Remember, though, this kind of injection of monetary juice only happens when the economy is slowing more than the central bank prefers... or, at a minimum, that such a slowdown is plausible enough to avoid too many objections from analysts, investors, and the media.
Another justification for rate cuts would be inflation slowing down. But there's a fine line between lower inflation and "deflation," and the Fed doesn't want to cross it. Lord knows that if dollars become more valuable over time, that would be disastrous to our debt-based system, even if it would help those who enjoy sound money.
In the meantime, we have one idea that might help you rest a little easier when thinking about your portfolio.
Doc's solution for a volatile market is back...
Our friend and Stansberry Research senior partner Dr. David "Doc" Eifrig has taught folks how to use his favorite trading strategy for years.
But it doesn't work the way most people would expect. As he explained in a DailyWealth essay back in June...
In my Retirement Trader service, our ideal trade is to sell options on world-class stocks that the market is afraid of...
We like to buy when fear is rampant – the exact opposite of what the typical investor does.
At the time, investors were feeling complacent. Volatility was near its lowest level since before the COVID-19 pandemic began.
But as Doc warned back then, "We don't expect volatility to remain this low for long."
Now, with fear's return to the markets, we'll see more of the specific moneymaking opportunities that Doc looks for.
And that's why he's making sure as many investors as possible get a chance to learn about his No. 1 trading strategy...
It has given Doc a 94% win rate since he debuted it to subscribers in 2010. And it allows folks to collect instant income over and over and over again, with less risk than actually buying stocks outright.
For instance, this strategy has delivered 20% annualized returns in each of the past three years. That includes the end of a wild bull market run in 2021, the bear market of 2022, and then a roller-coaster in 2023.
Not only that, but Doc even went on a 200-plus-trade win streak in the same span.
Right now, you can follow along with his free video as he demonstrates how to use this strategy to collect instant income, or "private jet money," as he calls it... and put your own money to work with a free trade recommendation. Click here to watch now.
Good investing,
Corey McLaughlin
Editor's note: For a short time only, Doc is releasing a real-money demo of his favorite strategy. Pro golfer Kevin Kisner joins him to try to collect $4,000 – in his personal brokerage account – in just 60 seconds. You're invited to follow along, every step of the way. Plus, you'll receive a free recommendation to try this technique yourself... Check it out right here.
