Hey There Income Hunter,
It was like a parade came through town yesterday to put a positive spin on recession.
The White House sent Biden out to hype up the “Inflation reduction Act” …
Then they sent Janet Yellen to explain how the US is absolutely, no way in recession.
The official recession report was, however, taken as confirmation that the Fed will be pivoting away from tightening soon …
This sent silver up for the third day in a row – and up nearly 9% over that time.
Interest rates plummeted, which is sending important signals to the markets, as well.
Today, we’ll take a look at what to expect now that recession will become the consensus narrative.
10-year Bonds Blow Through the H&S Neckline
On a day that recession became technically official, the US 10-year bond officially broke through the neckline of a head-and-shoulders neckline, which signals a potential move down to 2.25%.
This is very important because bonds are a predictor of future economic activity.
This is true because bonds trade within the financial system plumbing arena and smart money flows to bonds during periods of economic slowdowns.
However, for now, bonds and stocks are on the move higher, signaling sentiment is definitely moving more into the Fed pivot camp.
This makes the next round of economic data super important,as well as watching the internals of the stock market.
It is hard to picture stocks and bonds rallying together for much longer with still-high inflation, a weaker economy and a strong dollar.
If the Fed is getting closer to a pivot, then it will have to surrender the dollar. At that point we could see a bigger move for all assets as the printing presses are fired back up.
A Peek Into the Future
The chart below gives you a glimpse of what may come next. It illustrates the Fed’s last tightening cycle when the 10-year Treasury bond also put in a low before stocks …
Notice how stocks diverged from bonds and sold off due to weaker economic data, triggering a Fed pivot that sent everything flying higher.
Stocks really started getting hit as QT continued, which drains money directly from the banking system. That ultimately had a negative impact on stocks, which then ignited a collapse.
Bring It Home
I believe a massive spike higher in asset prices will follow a Fed pivot back to QE. The question is does it happen now or after a down trade from worse economic news ahead.
From the looks of it, the Inflation reduction package won’t add much from a fiscal stimulus standpoint. Between the taxes and spending, Goldman reported that it is a wash from that aspect.
The other macro driver to watch for is Europe. Their credit spreads continue to widen and the economic data is awful, which could have an impact on the US.
My highest conviction is precious metals, because no matter what valuation you use they look cheap.
Especially silver …
Look for a pull-back in SLV to the $18 level or maybe to fill the gap down to 17.65 for an opportunity to get in.
As always …
Live and Trade With Passion My Friend,
Griff