By Justin Spittler, editor, Casey Daily Dispatch
So much for a New Year’s rally.
Yesterday, U.S. stocks stumbled out of the gate.
The S&P 500 opened down 1.2%. The Dow Jones Industrial Average (DJIA) opened 0.4% lower. And the Nasdaq began the year down 2.5%.
As the day wore on, the market recovered. All three major indices closed the day in the black, albeit barely.
But it’s been a different story today. As we go to press, the S&P 500 is down 2%. The DJIA is down 2.5%, and the Nasdaq is down 2.6%.
Those are huge one-day declines.
• This isn’t the start to the year investors were hoping for…
After all, the S&P 500 fell 6.2% last year. That’s the worst annual performance since 2008.
The S&P 500 is also coming off its worst December since 1931.
In short, investors were hoping for some relief. But the market’s likely headed even lower.
I don’t say this because of a hunch. I say this because several key indicators are flashing danger.
The good news is that there’s still time to protect your wealth. I’ll show you how to “get defensive” in a second.
But let’s look at the first bearish indicator: the banking sector…
• Bank stocks are taking a beating…
Just look at this chart of the SPDR S&P Regional Banking ETF (KRE). This ETF invests in more than 100 regional banks.
You can see that it fell 20% in 2018.
That’s a problem, and not just for people who own regional bank stocks.
• Banks make loans to all sorts of businesses…
They’re highly exposed to the overall health of the economy.
Banks (and their shares) tend to do well when the economy is booming. When the economy starts to weaken, the opposite happens. Banks suffer because loans dry up and borrowers struggle to pay off their debts.
That’s why many smart people see bank stocks as a “canary in the coal mine” for the overall economy and stock market.
But here’s the thing. It’s not just small, regional banks that are hurting.
• Each of the major U.S. banks ended 2018 in the red…
I’m not talking about small declines, either.
Wells Fargo, Morgan Stanley, Citigroup, and Goldman Sachs all fell more than 20% last year. JPMorgan Chase fell 9%. And Bank of America tumbled 17% in 2018.
But it gets worse…
• European bank stocks are crashing, too…
HSBC – the U.K.’s biggest bank – fell 15% last year.
Banco Santander – Spain’s largest bank – fell 28%. Société Générale – one of France’s largest banks – is down 35%. And Deutsche Bank – Germany’s biggest bank – plummeted 56%.
This is clearly not good news for Europe.
And if Europe’s economy runs into serious trouble, those problems wouldn’t stay in a vacuum. They’ll spread around the world… and weigh on global stocks.
Unfortunately, the sharp sell-off in bank stocks isn’t the only reason for concern.
• The credit market is signaling trouble, too…
The credit (or “bond”) market is one of the deepest, most liquid markets on the planet. The U.S. bond market, for one, is almost twice as big as the U.S. stock market.
The credit market is also dominated by big financial institutions. It’s where the big boys play.
Because of this, you often see trouble in the credit market before it appears in stocks.
But I didn’t write this essay to repeat what I’ve already said. I wrote it because the credit market continues to flash new danger.
• Investors are pulling money out of high-yield bonds at an alarming rate…
You can see what I mean below.
This chart shows how much money flowed into high-yield bond funds last year. High-yield (or “junk”) bonds are bonds issued to companies with poor credit.
They’re riskier than bonds issued to companies with good credit. So they pay higher interest rates.
You can see that investors pulled more than $60 billion out of junk bonds last year. That’s a record. It’s also twice as much money as investors pulled out of junk bonds in 2017.
This tells us that appetite for risky bonds is drying up. That doesn’t bode well for U.S. stocks.
• I encourage you to take these warnings seriously…
Take precautions if you haven’t yet. Here are three ways you can do that today.
Hold extra cash. This will cushion you against big losses should stocks keep falling. It will also give you “dry powder” to buy stocks when the next major buying opportunities arise.
Own physical gold. As we often point out, gold is real money. It has preserved wealth for centuries because it’s a unique asset. It’s durable, easily divisible, and easy to transport.
It has also survived every major financial crisis in history. This makes it the ultimate safe-haven asset. Learn the best ways to buy and store it in our free special report: “The Gold Investor’s Guide.”
Read the “Ultimate Crisis Playbook.” We’ve compiled the best advice from all the editors and analysts from across our business. These are some of the brightest minds on the planet – and every entry is timely and extremely valuable for what lies ahead. With 109 pages full of tactical steps from our gurus, this market crash guide is designed not just to help you protect your wealth in the months ahead… but also to prosper. Download yours for free here.
Investors who do these things will sleep much better at night. They’ll also put themselves in a position to strike when the next big buying opportunity comes around.
January 3, 2019
Today, readers respond to Doug Casey’s recent interview on his top book recommendations for the new year.
You gave me a good target list for reading. I like history.
Dear Doug, I read your recent reading list suggestions and I pretty much agreed with everything you said, but I would like to suggest one more if I may to you and your American readers. It’s by an American writer pretty much forgotten now but whose quality of prose and intelligence has rarely been matched in my humble opinion and I’ve read a few books in my time. His name is Gene Wolfe and my pick is his seminal work of Sci/Fantasy, The Books of the New Sun. I met Mr. Wolfe at a book signing back in 1981 here in Birmingham, England. He struck me as a very polite gentleman, but his work speaks for himself. Keep up the good work and a Merry Christmas and a happy new year to you, your family, and readers.
As always, if you have any questions or suggestions for the Dispatch, send them to us at [email protected].
At the end of last year, with hardly anyone even noticing, President Trump made a surprising move…
The president signed a bill into law that opened up a multibillion-dollar market. Now, smart investors are staking an early claim in what could be the biggest investing story of 2019. Details here.