Are we headed for a recession? There are a couple of indicators that have accurately signaled the last number of recessions.

The bond market is a bit of a mess.  Treasury bonds have been getting killed for the third day in a row, taking ten-year yields back above 2%. It is a bit unusual given we are in the middle of a war,  but clearly, for now anyways, inflation concerns are driving the bond market. If we’re going to get 10% inflation this year, then it stands to reason that the Fed will hike interest rates a lot—but will they? If they do raise rates, then the economy will get hit hard and that would most likely bring on a recession

Now most investors pay little attention to the bond market, but the bond market is telling us something. An inverted yield curve has often been a potential recession signal.  ‘Inverted’ means that yields on shorter-term bonds exceed those on longer-term bonds. The current 2-Year yield is 1.88%, precariously close to the 10-Year yield of 2.14%, with the ‘spread’ being only .26%, raising fears of an inversion. The reason for the fears is because a Treasury yield inversion has reliably signaled the last six recessions (recessions highlighted by vertical grey shaded areas).

The yield curve inverted in 2019 before the 2020 Covid-induced recession. It also did so in 2007 before the 2008 Global Financial Crisis/Great Recession. And it inverted in early 2000 right before the dot-com/tech stock meltdown.

Another reliable recession indicator is crude oil. The breakout of the Ukraine war has seen oil prices spike to their highest level since the 2008 bubble burst, more than doubling the price of one year ago. As the chart illustrates, crude oil price spikes have been a reliable recession signal for decades (recessions highlighted by vertical grey shaded areas).

With the Fed now committed to ending bond purchases while raising interest rates   a bear market and recession look potentially unavoidable. The bear market would be the first event to be confirmed but given Fed’s long-overdue policy tightening, we can expect a recession to be confirmed  eventually.

Stay tuned!

(From Yahoo finance)…Concerns over the impact that the punitive measures countries and companies have taken against Russia have weighed on US equity markets. The S&P 500 dropped another 0.7% on Tuesday to bring its year-to-date losses to 12.5%. The Dow shed more than 0.5% to sink further into a correction, while the Nasdaq Composite extended losses after sliding into a bear market earlier this week.

President Joe Biden’s formal announcement that the US would be banning Russian imports of crude oil and other energy products confirmed speculation from earlier this week, and sent oil prices up to hold near 14-year highs. West Texas intermediate crude held well above $120 per barrel, and Brent crude hovered around $130 per barrel. Gas prices at the pump also spiked to a fresh high across the US.

The Nasdaq is now in a bear market, having dropped over 20% from its November high. While we could see a bounce soon, be very cautious jumping back in with both feet.  Although all corrections become buying opportunities, you want to make sure the bottom is in before getting aggressive. If you do not have an exit or hedging strategy, serious think about subscribing to our Technical Trader service. See special offer at bottom of this page.

Gold had another great day, up over 47.00 to close the session at 2043.30. As noted yesterday, gold is now technically overbought, so a pullback soon would be expected, as soon as we get some positive news out of Ukraine.

With the US and allies banning the import of Russian  oil, the price of oil moved higher again today, reaching almost 130.00 intra-day before settling at 123.70. At the bottom of the chart we can see that oil is extremely overbought technically.

If you do not have a hedging strategy, seriously consider subscribing to Trend Technical Trader (TTT) which offers numerous hedging options. Note also, TTT includes the Gold Technical Indicator (GTI).

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Stay tuned!

(From Yahoo finance)…The S&P 500 index fell 0.5% during the regular trading day as technology and growth stocks came under renewed pressure, and the Nasdaq Composite dropped nearly 1.6%. Treasury yields steadied after sliding earlier this week, and the benchmark 10-year yield hovered above 1.8%.

A fresh set of economic data due for release Friday morning is expected to reaffirm to investors that the U.S. economy has recovered sufficiently to allow monetary policymakers to ease their crisis-era supports. The Labor Department’s February jobs report is expected to show a fourteenth consecutive month of payroll gains, with jobs rising by more than 400,000 and the unemployment rate edging lower to 3.9% — or the lowest since February 2020 before the pandemic. Such a result would mirror the much better-than-expected private payrolls data out from ADP earlier this week.

Commodities have been hot as reflected by this chart of the Reuters/Jeffries CRB index.  Note at bottom of chart, based on RSI, commodities are technically overbought.

Russian stocks are being hit hard and the iShares Russian ETF was down another 25% today, and is now down over 80% since the invasion into Ukraine.  Note at the bottom of the chart, this ETF is extremely oversold at this point. That doesn’t mean it can’t drop lower, but suggests we should see a bounce soon. If looking to make a speculative trade here, we suggest waiting until you see a move off the floor.

Crude oil prices briefly surged to their highest levels since 2008 Thursday morning before pulling back a bit. Still, at about $110 a barrel, there are growing concerns that skyrocketing energy prices could lead to a severe economic pullback in the US and around the globe. The following chart shows the oil cycle where the cure for high oil prices is high oil prices.  As oil prices keep rising, it starts to act like a tax on consumers, ultimately affecting demand.

A worldwide recession would seriously hit demand for oil products.

Stay tuned!

(From CNN)… March is looking a lot like January and February on Wall Street. That’s not good news for investors.

The Dow fell nearly 600 points Tuesday, or 1.8%, one day after stocks capped off their second straight month of declines to start the year. The Dow managed to finish off its lows of the day though.

The Nasdaq and S&P 500 were also hit hard, with each index falling about 1.6%.

Rising oil prices, which spiked nearly 10% Tuesday to above $104 a barrel for the first time in more than seven years, are hurting sentiment. So is the rapid drop in long-term bond yields. The 10-year Treasury rate fell to about 1.7%, the lowest level since early January.

Oil has been parabolic, up another 8.03% today.  OPEC meets tomorrow and it will be interesting to see if they agree to raise production. Another option is with Iran and if sanctions are lifted, they  could add an additional 1.3 million b/d to supply.

Gold has exploded due to geopolitical events that suggest investors are not just nervous about what Putin is doing, but also whether the Western leaders are a match for him. The real concern here is that they back Putin into a corner where he feels he needs to save face and then we end of with a much bigger issue, such as a world war.

Gold was up another 43.10 and is now testing the key resistance established in November and December 2020 (red arrows). If gold can break through that resistance level, then we have a good shot of testing the all-time closing high of 2069 set in August 2020.

While gold was up 2.27% today, silver more than doubled that rise, up 4.82%.

The Canadian TSX continues to fare better than most global markets, given its heavy commodity and energy exposure.

US financials were the biggest losers today with the XLF fund down 3.69% for the day, its worst performance since June 2020.

Hopefully, you have taken our advise and established exit or hedging strategies. If you do not have a hedging strategy, seriously consider subscribing to Trend Technical Trader (TTT) which offers numerous hedging options. Note also, TTT includes the Gold Technical Indicator (GTI).

To ensure all readers have access to this hedge service, we temporarily reduced the price by $300. Click button below to subscribe. It’s your money – take control!

Stay tuned!