The yield curve is still 'inverted'... Think about it a different way... Comparing today with the most relevant history... A 13% drop would be 'normal'... The reason stocks can still go higher in the meantime...
 What should we make of the yield curve?...
I (Corey McLaughlin) mentioned on Monday some of the common arguments bulls and bears are making today. For the bears, a key point is that the yield curve remains "inverted" – meaning short-term Treasury rates are higher than long-term ones... Historically, that has been a sign of a recession ahead. Yet the curve has been inverted for a year, and still... nothing, at least officially. Most folks mention the inverted yield curve specifically in reference to the difference, or spread, between either the 2-year and 10-year Treasury rates or the three-month and 10-year rates. Both are upside-down today at negative 0.97% and negative 1.67%, respectively, and these spreads have been getting more deeply negative in recent weeks. Looking at yield spreads is a useful exercise we've talked about many times here in the Digest – from Treasurys to high-yield bonds – to gauge the credit market's strength or weakness. And over the years, when short-term interest rates have gone higher than longer-term ones, it has indicated concern among investors in the market and a recession ahead. An "inversion" is 8 for 8 in forecasting recessions since 1968. As we wrote last July, over history, a recession has started anywhere from six to 24 months after this signal flashes... That means we could see one between the last half of this year [2022] and 2024. This wouldn't surprise us at all. So far, though, a year on from the start of the current inversion, we haven't seen a recession. At least, we haven't gotten official word from the shot-callers at the monolithic National Bureau of Economic Research, who by their own admission use procedures that will make them the last to declare a recession. One could argue that we've already seen a kind of "rolling recession," but I won't get into all of that today. What I want to share instead is a fresh take on yield-curve analysis, courtesy of our colleague Kevin Sanford in our Stansberry NewsWire this week... As Kevin explains, the arrival of a recession, and a change in interest-rate policy and market behavior, just might be taking longer than most people are used to. Chalk it up as another influence of inflation. Kevin argues for throwing out your recent memories of the yield curve... Or at least how it has been used to analyze the economy and markets over the past several decades. As Kevin wrote... Today's yield-curve inversion isn't the same as it has been over the past 30 years. You see, in each of the last four recessions, we've had a disinflationary environment. And when inflation is at "normal" levels, the central bank can be proactive and cut interest rates when it sees trouble brewing in the economy. This leads to a quicker reversion of the yield curve before the start of the recession. But when inflation runs rampant, like it has over the past year-plus, the central bank simply can't afford to cut rates at the first sign of trouble. This is exactly why the current yield-curve inversion is the deepest it has been since the 1980s... The economy may be slowing, but shorter-term rates – which track Federal Reserve policy closer than longer-term ones – continue to go higher. The central bank continues to make moves to fight inflation while not yet seeing notable weakening of the jobs market. With the Fed continuing to drive up short-term interest rates while longer-term rates remain less affected by the central bank's hikes, the yield curve only gets more inverted. Today, a 3-month T-bill yields 5.34% while a 10-year Treasury is offering 3.71%. The difference in regimes... Kevin then shared a chart comparing the 10-year U.S. Treasury yield with the effective federal-funds rate. (This is the rate that, indirectly, you hear about when the Fed raises or cuts "rates." More specifically, the Fed's role is to suggest a target range for bank-lending rates, and the "effective" rate eventually settles within that range.) Anyway, here's the chart, reflecting a federal-funds rate of 5.07% today compared with the lesser 10-year Treasury yield... You can see the 10-year U.S. Treasury yield versus the effective federal-funds rate in these two environments (inflationary and disinflationary)... 
The bottom line is that yields act differently in inflationary regimes because the central bank typically chooses to combat high inflation at the expense of the economy. In other words, whereas the Fed might have been inclined to cut rates – and "normalize" yields – fairly quickly when inflation was low across the past several decades, the opposite is true now. Short-term rates keep going higher... And history shows they can get much more inverted than they are today before turning around and/or a recession strikes. The only two periods in which 10-year Treasury yields were lower than two-year yields for a similar extended amount of time were from August 1978 to May 1980 and September 1980 to October 1981. Those were inflationary times, like today. If the current yield-curve inversion lasts a bit longer like most economists are predicting – a recent Bloomberg survey shows 80% expecting an inversion to last through at least the first half of 2024 – it will mark the longest inversion in history. And that might be "normal," given the circumstances. In fact, you can already say it's normal... As we mentioned earlier, recessions usually hit between six and 24 months after yield inversions begin. We're not even halfway through that range. Be sure to read Kevin's entire piece for his full analysis. Now, what might this mean for stocks?... Let's continue with the idea that yields will remain inverted for another six months at least and into 2024... Consider the benchmark S&P 500 Index's performance during the extended yield curve inversions that Kevin mentioned – from August 1978 to May 1980 and the other from September 1980 to October 1981. What jumped out for me is that both periods ended during "official" recessions. This tells me two things... First, it's consistent with the idea we've shared before that stocks don't bottom until after a recession begins. And second, it suggests the same might happen this time, as the economy gets to a point where unemployment presumably rises enough for the Fed to stop its inflation fighting and for yields to "revert." As for the nitty-gritty price action of the S&P 500 (you know, what everyone cares about), during the multiyear inversion from 1978 to mid-1980, the benchmark index fell 13.1%. And in the roughly yearlong inversion from late 1980 to 1981, the S&P 500 dropped 12.6%. It's a small data set, but those numbers are nearly identical. And I believe relevant history means something. The timing is important, too... In our current inverted era, the curve went upside down across the board at the start of July 2022. Since then, the S&P 500 is up double digits and we haven't seen a full-blown "official" recession yet. But let's account for the modern investing and trading environment, too. Information, Fed messaging, and interest rates move a bit quicker and are presented differently than in the late 1970s and early '80s. Notably, in 2022, stocks dropped almost 20% from their previous highs seven months before the curve inverted for good as the Fed telegraphed its rate-hiking plans. The idea of rate hikes ahead, and then recession expectations stemming from them, appears to have been enough to create this move. Back in the comparable seven-month periods ahead of the start of the two prior extended inversions in 1978 to 1980 and 1980 to 1981, the S&P 500 was up nearly 10% and roughly 4%, respectively. Only afterward did they drop by double digits until the middle of the eventual recessions. In other words, maybe we've already seen the "worst" for stocks, even if a recession is here or to come. As our colleague Brett Eversole wrote in a February issue of DailyWealth when also discussing this topic and the possible outcome for stocks... Our estimates show earnings will only be down around 6% to 7% in 2022. Yet the S&P 500 Index dropped nearly 20% last year. That's the market pricing in a coming recession and a further earnings decline. But what if neither shows up?... The surprise potential for stocks isn't to the downside today... It's to the upside. Everyone expects more pain. But if the news keeps getting "less bad," it will buck those expectations. And that means stocks could have an absolutely stellar year in 2023. Perhaps then we're talking about the comparisons we've shared today becoming relevant in 2024. Specifically, that would mean a 13% or so drop in the U.S. indexes right before interest rates start "getting back to normal." That's not the worst pullback in recorded history, but it's notable. Based on history, this would happen upon the elusive Fed "pivot" and rate cuts (which historically have also ended bear markets). But we're still not close to that point yet, even after 10 rate hikes over 15 months. The central bank is still talking about raising rates... And the major indexes, on balance, have risen since March as people still pay high prices for their needs and (some) wants every single day. So long as the economy holds up even with still-high inflation, stocks can keep heading higher... until it inevitably cools to the point where the Fed decides the economy needs support rather than constraint. Only then would we likely see a change of direction in central-bank policy... and a reversion of the yield curve. New 52-week highs (as of 6/27/23): Apple (AAPL), Applied Materials (AMAT), A.O. Smith (AOS), Covenant Logistics (CVLG), D.R. Horton (DHI), Floor & Decor (FND), Fortive (FTV), W.W. Grainger (GWW), inTEST (INTT), iShares U.S. Home Construction Fund (ITB), Lennar (LEN), Eli Lilly (LLY), MSA Safety (MSA), MasTec (MTZ), NVR (NVR), Palo Alto Networks (PANW), Parker-Hannifin (PH), PulteGroup (PHM), Roper Technologies (ROP), Vericel (VCEL), and Zimmer Biomet (ZBH). In the mailbag, we have varied opinions on the Digest, stemming from the topic of our "headers" at the start of each day's issue... Do you have a take? As always, send your comments, questions, concerns, or what-have-yous to feedback@stansberryresearch.com. "Agree with comments from subscriber Brian N. suggesting bullet points to be more concise. The intro should tell me enough to decide whether to keep reading... Just my two cents worth." – Subscriber Kathy D. "Regarding Corey McLaughlin's request for other readers' views on subscriber Brian's thoughts about shortening The Stansberry Digest, I concur 1,000%. "I've often thought that Corey was being paid by the word!..." – Subscriber John M. Corey McLaughlin comment: How do you know I'm not? (I'm not.) "Regarding Brian N.'s complaint that the Digest is too long I have to disagree. I'd say it's perfect. There's subtle nuance to every Digest that can't be reduced to an Executive Summary. "This topic came up several years ago and the conclusion was to leave it alone. Hopefully this time too. Keep up the great work Corey & team!" – Stansberry Alliance member Stan M. "I like the Digest just the way it is. Don't change a thing." – Subscriber Bill K. All the best, Corey McLaughlin
Baltimore, Maryland
June 28, 2023
Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios | Stock | Buy Date | Return | Publication | Analyst | MSFT
Microsoft | 11/11/10 | 1,216.3% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 1,049.7% | Stansberry's Investment Advisory | Porter | ADP
Automatic Data | 10/09/08 | 780.0% | Extreme Value | Ferris | wstETH
Wrapped Staked Ethereum | 02/21/20 | 634.1% | Stansberry Innovations Report | Wade | HSY
Hershey | 12/07/07 | 629.5% | Stansberry's Investment Advisory | Porter | WRB
W.R. Berkley | 03/16/12 | 516.7% | Stansberry's Investment Advisory | Porter | BRK.B
Berkshire Hathaway | 04/01/09 | 494.6% | Retirement Millionaire | Doc | AFG
American Financial | 10/12/12 | 402.9% | Stansberry's Investment Advisory | Porter | TTD
The Trade Desk | 10/17/19 | 322.7% | Stansberry Innovations Report | Engel | FSMEX
Fidelity Sel Med | 09/03/08 | 315.8% | Retirement Millionaire | Doc | Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals | | 4 | Stansberry's Investment Advisory | Porter | | 3 | Retirement Millionaire | Doc | | 2 | Stansberry Innovations Report | Engel/Wade | | 1 | Extreme Value | Ferris |
Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio | Stock | Buy Date | Return | Publication | Analyst | wstETH
Wrapped Staked Ethereum | 12/07/18 | 1,500.1% | Crypto Capital | Wade | ONE-USD
Harmony | 12/16/19 | 1,083.5% | Crypto Capital | Wade | POLY/USD
Polymath | 05/19/20 | 1,028.1% | Crypto Capital | Wade | MATIC/USD
Polygon | 02/25/21 | 798.9% | Crypto Capital | Wade | BTC/USD
Bitcoin | 11/27/18 | 716.9% | Crypto Capital | Wade | Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio.
Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios | Investment | Symbol | Duration | Gain | Publication | Analyst | | Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | | Band Protocol crypto | | 0.32 years | 1,169% | Crypto Capital | Wade | | Terra crypto | | 0.41 years | 1,164% | Crypto Capital | Wade | | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | | Frontier crypto | | 0.08 years | 978% | Crypto Capital | Wade | | Binance Coin crypto | | 1.78 years | 963% | Crypto Capital | Wade | | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | | Rite Aid 8.5% bond | | 4.97 years | 773% | True Income | Williams | ^ These gains occurred with a partial position in the respective stocks.
* The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. | 
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