Troubles for two 'bigs'... It's a dip... What happened to the 'Great Rotation'?... An expected pause... A long-term buy signal... Alphabet's CEO on 'overinvesting' in artificial intelligence... Today's 'AI winners' aren't guaranteed...
 Nitpicks and real troubles...
The major U.S. indexes opened and closed in the red, led lower by mega-cap stocks like Alphabet (down 5%) and Tesla (down more than 12%). It's earnings season, and some disappointing results from these companies after yesterday's close showed in trading today. Alphabet beat Wall Street estimates... But lower-than-expected revenues from YouTube advertising and an acknowledgment of capital outlays tied to the AI boom raised some eyebrows. (Our Stansberry's Investment Advisory lead editor Whitney Tilson, though, called those concerns "nitpicks" in an analysis today and likes the stock long term.) Meanwhile, Tesla's operating margins shrank for the fourth straight quarter, from 9.6% this time last year to 6.3% today. And "regulatory credits" accounted for 60% of its total net profit. The company "is getting hit from both sides," as CNBC put it... Expenses are soaring as the company spends on the artificial intelligence infrastructure [Elon] Musk says is needed to turn Tesla EVs into self-driving cars, and to develop humanoid robots capable of doing factory work and more. Meanwhile, deliveries of Tesla's most popular electric vehicles have been dropping this year, and the company has responded by slashing prices and offering other incentives like low-interest loans. The tech-heavy Nasdaq Composite Index closed 3.6% lower, the benchmark S&P 500 Index and small-cap Russell 2000 Index were off more than 2%, and the Dow Jones Industrial Average finished 1.2% lower. It's a dip... Today's moves come after some action last week when popular semiconductor stocks sold off for a few days. Add it all up and the S&P 500 is down about 4% since its most recent high on July 16. The Nasdaq is down roughly 7% from its July 10 high. This isn't a major correction by any means – and the U.S. benchmark is still trading above its long-term 200-day moving average and at its shorter-term 50-day moving average. But it's the most significant drawdown from an all-time high since April. We're not surprised that mega-cap stocks are selling off some, given their strong march higher in general since October 2022. A breather here and there is healthy, especially after earnings reports that miss Wall Street expectations. Plus, if you listened to our Ten Stock Trader editor Greg Diamond in his free Diamond's Edge video on Monday... you know the technical signals he follows suggest that another market "dip" is likely in progress. As Greg said... I believe we have one more dip to buy within this larger bull market and then things might get a little bit hairy heading into the later summer months and early fall. Obviously, the election is going to have some volatility around it. I (Corey McLaughlin) have covered enough politics lately... and have gone down presidential-history rabbit holes. See Monday's and Tuesday's editions here and here, where we looked to find some historical context for what to expect from the market in an election environment like we have today. In short, the limited history of these cases – a sitting president "voluntarily" not seeking another term – suggests modest returns in the three months leading up to that year's November election, but then things going awry in the year that follows. 'Everybody knows' – continued... Today's small-cap decline caught my attention, too. After all, just a week ago, the "Great Rotation" from large to small caps became a popular idea – among the analyst crowd on social media and the financial media, at least – with small caps outperforming the bigs over the previous week. What happened today? What do Tesla and Alphabet earnings have to do with small caps? Isn't the Federal Reserve still going to cut interest rates later his year, cheapen the cost of capital, and help smaller, capital-intensive businesses? Yes, it appears likely. But narratives make for a good story only until prices win out. As we wrote last week... When "everybody knows" one thing, it's time to think differently because that story is already priced into the market... And it looks like everyone knows about this rotation now. After a double-digit run-up in the Russell 2000 in about a week, I wondered aloud in last Wednesday's edition... Is the suddenly popular "Great Rotation" closer to its end than the beginning now that "everybody knows" about it? The answer, as it so often does, "depends on your timeline." As we'll show courtesy of our colleague Chris Igou, if it's a few days or weeks, you might want to hold off following what "everybody knows" into small caps today. But if you're eyeing up a trade or investment for the next year, the picture looks fine. After we share what Chris found about the short-term trend, we'll highlight research from Stansberry Research senior analyst Brett Eversole about the longer term. The very short-term outlook for small caps... Chris, the editor of our DailyWealth Trader advisory, wrote to subscribers yesterday that the Russell 2000 beat the S&P 500 over a seven-day stretch by the highest margin in 38 years. That's impressive, no doubt. It's something we've been waiting for, too, as it became more evident that interest rates could go lower in the U.S. by year's end. But quickly, according to an indicator that Chris follows, small-cap stocks hit "overbought" levels that suggested "a pullback is imminent." As he explained... You see, the Russell 2000's 9% move in seven days hit a warning bell on the relative strength index ("RSI"). If this is new to you, the RSI swings between readings of 0 to 100. And it helps us spot stocks that are moving too far, too fast in either direction. A reading above 70 indicates a stock is in "overbought" territory. An RSI reading below 30 signals a stock is "oversold" after a drawdown. In either case, the stock tends to reverse shortly after. This makes it a good indicator for spotting shifts in a stock or sector. And it has worked well for the Russell 2000 in recent years. You can see this overbought signal in this chart that Chris shared. As he wrote... You can also see previous signals going back three years. And it shows what tends to happen after small caps hit overbought territory and turn lower... 
Since late 2021, we've seen five other cases where the Russell 2000 hit overbought territory and turned lower. The oldest case was in November 2021, right before the 2022 bear market. The Russell 2000 fell 32% after that reading. The next example came in August 2022. Small caps hit overbought territory and started to roll over. The Russell fell 18% from August 15 to September 26... a little over a month. We saw similar overbought readings more recently in February and July 2023. The February case led to a 14% drop into late March. And in July, the index dropped 18% into late October. Now, "overbought" signals don't always mean the price of an asset can or will go down in every case, or vice versa with an "oversold" signal. But the history is pretty strong for at least a breather, and likely a reversal, when you see extremes in small caps. As Chris said... In short, the first four readings led to double-digit drops. The most recent case wasn't as bad as the previous four. But it still fell 7.4% in less than a month. And it took a couple months to recover. We can't know for sure what will happen next. But the odds are strong that small-cap stocks will pull back in the near term. Chris advised subscribers that if they're looking to join the rally in small caps, they should "wait for it to cool down before getting in. It likely won't be long before small caps' momentum reverses lower." That said, a spike like this in small caps is a longer-term 'buy' signal... That's what Brett, lead editor of True Wealth, explained in yesterday's edition of DailyWealth. As he showed, the recent spike in the Russell 2000 suggests more gains ahead over the next three, six, and 12 months, if history is any indication... The index has jumped 6% or more in a week just 45 times since 1979 – about once per year. And importantly, it tends to keep soaring after those rallies. Take a look... 
Small caps have been good to investors over the long term. The Russell 2000 is up 9.1% annually over the past 45 years. But you can dramatically improve those returns if you buy after a one-week spike like we just witnessed... Similar setups led to 7.9% gains in three months, 14.2% gains in six months, and 18.1% gains over the next year. That's a massive improvement over the normal gain for small caps. And these situations led to profits 75% of the time over the next year. Small caps are still massively underperforming large caps. But the recent jump might be a sign of changes to come. It would make sense for small caps to rise as they ride a tailwind of Fed rate cuts... assuming that happens like everyone expects. Of course, we know the market isn't always rational, though. As always, know your timeline. Investing decisions can often become simpler by starting with the time horizon. For example, in the near term, small caps may "cool off" from overbought levels – but in the next year, more gains could be ahead for the sector. One final thing... Let's close things out by going back to Alphabet's quarterly performance. As we alluded to above, some analysts had concerns about Alphabet's spending projections for AI projects. Whitney wrote in his free daily letter today... Investors didn't like the guidance that capital expenditures ("capex"), which have nearly doubled this year as Alphabet invests heavily in the AI arms race, will continue to exceed $12 billion per quarter for the rest of this year (capex was $12.0 billion and $13.2 billion in the first two quarters). A comment from Alphabet CEO Sundar Pichai on the company's earnings call also caught my attention. He was asked about the challenge of the company's being "overbuilt" for AI as the technology's adoption progresses. Pichai said... One way to think about it is when you go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting. Even in scenarios where it turns out that we are overinvesting, these infrastructures are widely useful for us. Depending on your view, that might sound like "bubble talk" about throwing money at the wall and seeing what sticks... or it might sound like the kind of good risk-taking from a vast business with tons of cash, representing the kind of innovative approach Google has been known for over the years. It's probably a bit of both... But it's definitely at least an acknowledgment from a key figure in Silicon Valley that not all the money being spent on AI right now will pay off in full. This point seems to have been conveniently ignored up until now. In other words, the "AI winners" of today aren't guaranteed... And given the gains associated with the AI boom in many companies already, like Nvidia and other chip stocks, it's wise to consider looking past the popular names of today when looking for the next big winners in the space. If you want to hear some more about this idea, be sure to check out the message our friend Joel Litman has been sharing lately. You've probably heard us mention Joel before. He's a regular at our annual Stansberry Research conference and founded our corporate affiliate Altimetry. Among other things, Joel called the 2008 crash, and he is widely known on Wall Street and beyond for his unique forensic accounting approach. He says "AI is a double-edged sword" that could make or break a portfolio today... but most people don't know the details of why. Click here to hear Joel's take now. This free presentation goes offline at midnight Eastern time tonight. New 52-week highs (as of 7/23/24): Booz Allen Hamilton (BAH), Alpha Architect 1-3 Month Box Fund (BOXX), Brown & Brown (BRO), BWX Technologies (BWXT), Coca-Cola Consolidated (COKE), EnerSys (ENS), Fidelity National Financial (FNF), iShares U.S. Aerospace & Defense Fund (ITA), iShares Russell 2000 Value Fund (IWN), Lockheed Martin (LMT), Motorola Solutions (MSI), Omega Healthcare Investors (OHI), Pembina Pipeline (PBA), Construction Partners (ROAD), S&P Global (SPGI), Spotify Technology (SPOT), Terex (TEX), and United States Lime & Minerals (USLM). In today's mailbag, feedback on a note in yesterday's edition about a market behavior last seen in January 2021... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Curious as to where you are getting monthly hedge fund trading data given that 13Fs are only filed four times a year (45 days after a calendar quarter). Thanks." – Subscriber Ross W. Corey McLaughlin comment: The specific data we noted yesterday was from a published Bloomberg report and came from Goldman Sachs' prime brokerage desk, which tracks the trades of hedge funds and shared weekly trading data in a note to clients on Monday. All the best, Corey McLaughlin
Baltimore, Maryland
July 24, 2024
Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios. Returns represent the total return from the initial recommendation. | Investment | Buy Date | Return | Publication | Analyst | MSFT
Microsoft | 11/11/10 | 1,419.5% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 1,417.6% | Stansberry's Investment Advisory | Porter | ADP
Automatic Data Processing | 10/09/08 | 905.0% | Extreme Value | Ferris | WRB
W.R. Berkley | 03/16/12 | 719.4% | Stansberry's Investment Advisory | Porter | BRK.B
Berkshire Hathaway | 04/01/09 | 669.5% | Retirement Millionaire | Doc | HSY
Hershey | 12/07/07 | 469.6% | Stansberry's Investment Advisory | Porter | TT
Trane Technologies | 04/12/18 | 451.1% | Retirement Millionaire | Doc | AFG
American Financial | 10/12/12 | 441.8% | Stansberry's Investment Advisory | Porter | TTD
The Trade Desk | 10/17/19 | 382.5% | Stansberry Innovations Report | Engel | NVO
Novo Nordisk | 12/05/19 | 381.6% | Stansberry's Investment Advisory | Gula | 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 | | 5 | Stansberry's Investment Advisory | Porter/Gula | | 3 | Retirement Millionaire | Doc | | 1 | Extreme Value | Ferris | | 1 | Stansberry Innovations Report | Engel |
Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio | Investment | Buy Date | Return | Publication | Analyst | wstETH
Wrapped Staked Ethereum | 12/07/18 | 2,291.8% | Crypto Capital | Wade | BTC/USD
Bitcoin | 11/27/18 | 1,654.6% | Crypto Capital | Wade | ONE/USD
Harmony | 12/16/19 | 1,157.7% | Crypto Capital | Wade | MATIC/USD
Polygon | 02/25/21 | 762.8% | Crypto Capital | Wade | AGI/USD
Delysium AI | 01/16/24 | 312.5% | 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 | | Microsoft^ | MSFT | 12.74 years | 1,185% | Retirement Millionaire | Doc | | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | | 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 | | PNC Warrants | PNC-WS | 6.16 years | 706% | True Wealth Systems | Sjuggerud | | Maxar Technologies^ | MAXR | 1.90 years | 691% | Venture Tech. | Lashmet | | Silvergate Capital | SI | 1.95 years | 681% | Amer. Moonshots | Root | ^ 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%.
Stansberry Research Crypto Hall of Fame Top 5 highest-returning closed positions in the Crypto Capital model portfolio | Investment | Symbol | Duration | Gain | Publication | Analyst | | Band Protocol | BAND/USD | 0.31 years | 1,169% | Crypto Capital | Wade | | Terra | LUNA/USD | 0.41 years | 1,166% | Crypto Capital | Wade | | Polymesh | POLYX/USD | 3.84 years | 1,157% | Crypto Capital | Wade | | Frontier | FRONT/USD | 0.09 years | 979% | Crypto Capital | Wade | | Binance Coin | BNB/USD | 1.78 years | 963% | Crypto Capital | Wade | | 
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