Why it's a 'season of contradictions'... Mike Barrett's analysis of three major economic catalysts... A closer look at earnings... Today's action... What 9 trillion yen buys... Marc Chaikin on the banks: 'It's happening again'...

It's a 'season of contradictions'...

As Stansberry Research analyst Mike Barrett pointed out to his Select Value Opportunities subscribers today...

Economic analysis presents a unique conundrum... It often forces us to weigh what is versus what ought to be.

And, often, those two sides might not align. That's why in Select Value Opportunities, Mike uses what he calls a "data-centered approach... that includes looking at real-time market conditions, future trends, and even potential 'contradictions.'"

And that's what we see today...

As we've noted over the past few months, high(er) inflation has remained sticky. And the jobs market has remained somewhat mystifyingly strong... at least based on the "official" data. Corporate earnings haven't fallen off a cliff, either, though we have seen some companies report slowdowns.

And lurking in the background is uncertainty about the Federal Reserve's next move. In part that's because of the uncertainty about the economy... and in part it's because the central bank, once again, does not appear to have a good read on what's coming next. Yet the Fed keeps saying it is intent on cutting interest rates, which would juice the economy...

Add it all up, and it feels like what Mike called a "season of contradictions." He said...

On one hand, persistent inflation and slowing revenue growth are bad for profits and stock prices. But weakening employment could force the Federal Reserve to cut rates sooner rather than later, even if inflation remains high... And that could boost stock prices overall.

With all this in mind, Mike analyzed the three major economic catalysts (inflation, jobs, and corporate earnings) that are at the forefront of investors' minds today – and reviewed how these trends could "determine whether or not stocks reach new highs."

About earnings...

We've covered inflation enough and the labor market next-most... So today, I (Corey McLaughlin) want to highlight the earnings analysis point from Mike. As he shared in his Select Value Opportunities issue today (available to Stansberry Alliance members here)...

Many of the companies we track daily in the Select Value Opportunities service reported financial results last week, including the five listed below. They cover a large swath of the global economy, and each one tells a similar story...

Whether we're talking about sales at Starbucks coffee shops, Hershey's chocolate Easter bunnies, Apple's latest iPhones, Ametek's pollution monitors, or Ansys' enterprise software, the revenue-growth trend for all of these companies is undeniably down over the past year. Take a look...

The recent Consumer Confidence Survey suggests that this revenue-growth trend could continue in future months. That's largely because survey respondents are shifting their spending habits... Nearly half of them are planning to dine out less to save money over the next six months. Participants also mentioned reducing, or eliminating, spending for discretionary items, like clothing and entertainment.

But this isn't bad news for every retailer... Amazon (AMZN), for example, reported strong first-quarter results on April 30, and a fifth consecutive quarter of rising revenue growth on a TTM basis. During Amazon's recent quarterly call, CEO Andy Jassy noted that more and more shoppers are taking advantage of the company's low prices and its same-day and next-day delivery services.

Be sure to check out Mike's full issue for more details.

And, for those who might not know, Select Value Opportunities is an exclusive tool that allows folks to look up the fundamental valuations on 100 popular stocks, at no extra cost, in Mike's proprietary database.

Today's action...

It was a mixed day for the major U.S. indexes, and the benchmark S&P 500 was little changed. Treasury yields moved slightly higher.

It was a quiet day for financial news as well. The main note was remarks from Boston Fed President Susan Collins. She shared the company line about needing "greater confidence" that inflation is en route to a 2% annual rate before making a major policy move like cutting interest rates. Collins then qualified that idea and suggested what she thinks might need to happen for inflation to "get there."

Notably, in a speech at the Massachusetts Institute of Technology, she said that if inflation is going to reach a 2% annual rate, it would take a "slowdown in activity" in the U.S. economy. So, absent a slowdown – or a recession – she thinks higher inflation will continue. Take note...

And she added, when it came to measuring progress on inflation (and, by association, rate-cut possibilities), that "expecting all indicators to be well aligned is too high a bar to start normalizing policy." In other words, it sounds like there's wiggle room on the Fed's goal of 2% inflation. Take note on that, too...

Our suggestion, again: Prepare for more, higher inflation.

A 'breaking the yen' update...

We have an update to a story we discussed last week here and here...

Over the past few days, the value of the Japanese currency has fallen back toward 155 yen to one dollar. That's where it was before the Bank of Japan began intervening early last week in the foreign-currency market to strengthen the yen...

The Bank of Japan bought 9 trillion yen (and sold $58 billion in U.S. dollars). And it appears all it accomplished was to halt a weakening currency for a few days...

As global news service Reuters reported today, a Bank of Japan official said that a continued weakening yen – if it increases inflation in Japan – could lead to a policy shift with its rates...

Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank may take monetary policy action if yen moves have a big impact on inflation, escalating his warning against the economic fallout from the currency's recent sharp declines.

A weak yen affects the economy in various ways including by pushing up import costs, and affecting demand for goods and services, Ueda said.

While the BOJ won't seek to directly control yen moves with monetary policy, it will scrutinise the potentially huge impact they could have on the economy and prices, Ueda said.

The outcome could indirectly influence U.S. markets.

A continued weakening yen would strengthen the dollar's value against it and contribute to a relatively stronger dollar overall against other major global currencies. A strong dollar is a headwind for stocks.

Alternatively, if Japan raises rates – above the near-zero level they are at today – it could be a tailwind for U.S. stocks and other markets relative to Japan.

One more thing before we go today...

We want to make sure you have the opportunity to hear the latest message from our friend Marc Chaikin, the founder of our corporate affiliate Chaikin Analytics.

You might remember that Marc called last spring's run on the banks four months before it happened. Now, he's warning of more "chaos" in banks starting next week that will shake up the markets. In short, Marc says, "It's happening again."

And he has a few ideas for how folks can prepare their portfolios by using a little-known vehicle outside of the banks that could double or triple your money – if you know where to find it. This doesn't have anything to do with a typical stock, bond, or cryptocurrency.

You can check out Marc's free presentation here for more details.

You'll also hear about his stock-picking strategy, which identified the top nine stocks of 2023. And just for tuning in, you'll get two free recommendations from Marc – one stock that he loves today and another ticker to completely avoid...

He has also put together a special bonus just for Stansberry Research subscribers. You'll hear about how you can access that as well.

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New 52-week highs (as of 5/7/24): ABB (ABBNY), Cameco (CCJ), Colgate-Palmolive (CL), Coca-Cola Consolidated (COKE), Cintas (CTAS), Commvault Systems (CVLT), iShares MSCI Spain Fund (EWP), Comfort Systems USA (FIX), Markel (MKL), Motorola Solutions (MSI), Procter & Gamble (PG), RadNet (RDNT), Trane Technologies (TT), Tyler Technologies (TYL), United States Lime & Minerals (USLM), Veralto (VLTO), and Utilities Select Sector SPDR Fund (XLU).

In today's mailbag, a response to a note in yesterday's mail... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Subscriber Gary S. made an accusation but provided no facts. Or was it just an opinion based on misinformation? Everyone needs to be careful what they post these days. Would like to see where he got his 'facts.'" – Subscriber Uncle B.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 8, 2024