Navigating Frothy US Equities with S&P SpreadsNavigating frothiness in US equities requires both caution and tact. With the S&P 500 nearing its all-time high amid flashing recession signals, investors must be vigilant with volatility during upcoming earnings season, driven by outsized expectations.
This paper explores the persistent recession indicators and forces at play during upcoming earnings. The paper posits a spread trade using CME’s Micro E-Mini futures (Long S&P 500 and Short Russell 2000) to maintain upside potential with reduced downside risk.
RECESSION RISKS PERSIST AS RATES REMAIN HIGH
On Friday, the PCE Price Index (Fed’s preferred gauge) showed inflation cooling to 2.6% in May, in line with expectations. Price pressures are slowly abating.
Numbers aside, the broader economic landscape presents a complex picture.
Signals from the job market point to unemployment claimants at a record high for the past two and a half year with job openings shrinking drastically. Personal earnings were higher than anticipated in May (0.5% vs 0.4%), but spending was below expectations. Consumers are being more cautious. Mint Finance covered these nuances in a previous paper .
Housing is flashing weakness as new housing starts hit a four-year low in May. Soaring prices and steep mortgage rates are weighing on demand.
The Fed’s policy path remains unconfirmed. However, consensus point to a rate cut as early as September. Even if that happens, rates are expected to decline gradually.
Source: CME FedWatch
Despite risk of recession, the S&P 500 has had an exemplary showing this year, trading near their all-time high. YTD performance of 15% in 2024 has been far higher than the 74-year average of 4%.
Yet, the performance has been increasingly top-heavy. Nvidia, Apple, and the rest of the tech titans have contributed much of the gains in the broad S&P500 index as it is market cap weighted. The index is heavily reliant on and sensitive to the performance of these mega-caps.
The equal-weighted S&P 500 index is up only by 4% in sharp contrast. The spread between the S&P 500 and its equal-weighted counterpart is near its highest point since 2008. The spreads between the S&P 500 and both the Russell 2000 and S&P Midcap indexes have reached multi-decade highs.
Outperformance was re-affirmed after the recent earnings season. Mega-caps crushed EPS and revenue expectations and reported phenomenal guidance while other stocks, especially utility and energy sector reported revenue and EPS figures below estimates according to FactSet report .
Rallies in mega-cap stocks are being driven by idiosyncratic tailwinds, such as advancements in AI. Meanwhile, slowing consumer spending in the US is raising concerns for the broader market.
RISK OF SHARP CORRECTION WARRANTS SPREAD POSITION
According to FactSet , Q1 earnings season was positive. Only 19% of firms reported earnings below expectations. Actual average EPS YoY growth for the index was 5.9% (above 3.4% expected as of March 31).
Frothiness in the equity market is palpable. Consistent outperformance by mega caps is baked into investor expectations. Strong earnings are already factored into prices, as evidenced by the S&P 500's P/E ratio of 28.38x (far higher than the 10-year average of 20x translating to a 42% above average earnings expectations). Average P/E ratio in the best performing tech sector is even higher at 37.47x.
Even minor shortfalls in guidance or revenue/earnings can lead to significant corrections in such a climate. The FactSet reports that 31.8% of firms which beat earnings EPS estimates by up to +5% saw average price decline of -0.9%.
Source: FactSet Research
In fact, overall, positive earnings only drove a 0.9% increase in price (1% 10Y historical average) while a negative earnings report led to 2.8% drop (-2.3% 10Y historical average).
Source: FactSet Research
Market frothiness elevates risk of a sharp price correction in single names during Q2 earnings. Analysts are concerned as expectations for Q2 EPS YoY growth have been lowered from 9% on 31/March to 8.8% as of 22/June.
Despite this, mega-caps remain in solid position. Robust demand for AI, buoyant advertising revenue, globalized revenue streams, and substantial market dominance have positioned them to continue growing at a disproportionate rate.
In case the upcoming Q2 results pan out similarly to Q1 in favor of mega-caps, the S&P 500 will continue to outperform the broader market indices.
HYPOTHETICAL TRADE SETUP
The S&P 500, with its high concentration of mega-cap stocks, is likely to perform better than broader market indices in the coming earnings season. However, recession signals are also flashing.
The S&P 500 does not perform well during recessions. Over the last four recessions, it has declined an average of -14%. Comparatively the spread between S&P 500/Russell 2000 spread has increased 1.7%.
The S&P 500/Russell 2000 spread has also outperformed during the six-month preceding recessions.
Given the S&P 500-Russell 2000 spread's historical outperformance during recessions, a spread position presents less downside risk compared to an outright long position in the S&P 500.
This strategy also maintains a bullish outlook on the top-heavy S&P 500's potential to outperform in the upcoming season.
Moreover, the spread trade preserves the upside potential in the ongoing rally, as its performance has been comparable to an outright long position in the S&P 500.
A view on the spread between the S&P 500 and Russell 2000 can be expressed using CME Micro E-Mini Equity futures. At 1/10th the size of the full-size E-mini futures, the Micro contracts allow for smaller trades with more granular exposure.
A long position in the Micro E-Mini S&P 500 futures expiring in September (MESU2024) can be offset by a short position on 2 x Micro E-Mini Russell 2000 futures expiring in September (M2KU24). This position is highly margin-efficient as CME offers margin credit for this spread.
Hypothetical trade set up in summary requires entry at 2.69x, with a target at 2.78x coupled with stop loss at 2.6x.
The simulated payoffs are described below.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Recession
6 INEVITABLE Stock Market DownturnsIn the world of stock trading, and crypto trading, volatility is as much a part of the landscape.
Whether you’re a day trader or a long-term investor you’re bound to undergo different degrees of stock market downturns, drops and crashes.
And each level of downturn has its own set of characteristics, challenges, and strategies for recovery.
Let’s dive into the nuances of market downturns, so you can navigate these stormy waters with confidence and savvy.
DOWNTURN #1: Down -2%: A Ripple of Volatility
Think of a -2% drop in the stock market as your morning coffee spilling over a bit—it’s unpleasant but hardly the end of the world.
This level of decline is typically seen as a blip of volatility, a common occurrence in the stock markets that often corrects itself in the short term.
DOWNTURN #2: Down -5%: The Pullback Perspective
When the market drops by 5%, it’s is often referred to as a pullback and, while it might cause a bit of concern.
However, if you look at the bigger time frame, you’ll see it might not signify a long-term trend.
DOWNTURN #3: Down -10%: Entering Correction Territory
A 10% drop is a clear signal that the market is in a correction phase.
This is where the uptrend will come to a temporary halt and the market will drop and correct itself.
You’ll see moving averages will cross down and the medium term trend will be showing downside.
You’ll also most likely look for shorts (sells) and take advantage of the correction.
DOWNTURN #4: Down -20%: The Bear Market Looms
Now we’re in the territory of the bear market.
This is generally characterized by a 20% or more drop.
It might be time to look into more defensive stocks or sectors, such as utilities or consumer staples, which tend to be less affected by economic downturns.
DOWNTURN #5: Down -50%: The Market Crash Crisis
A 50% plunge is the equivalent of a financial earthquake, causing widespread panic and uncertainty.
It’s quite rare, but when it happens, it’s all hands on deck.
We saw this in the financial crisis.
We saw this during the tech bubble.
We saw this with the oil crisis.
Silver Linings:
Even in the darkest times, opportunities can be found.
And whenever we’ve had a crash with world markets, they have turned up, made a come-back and moved to all time highs.
DOWNTURN #6: Prolonged downside: The Depression
This one I don’t have a number for you.
Unlike recessions, which are typically shorter and less severe, depressions are rare and can last for several years, causing long-term damage to a country’s economic health.
The most famous example is the Great Depression of the 1930s, which started with the stock market crash in 1929 and lasted for about a decade in most countries.
During this period, unemployment rates soared, reaching as high as 25% in the United States, while industrial production, prices, and incomes plummeted.
Conclusion:
Steady as She Goes
As I like to say.
It’s important to know that the downtrends, downturns and downside will come.
We need to be clued up and prepare for these situations.
That way we’ll take advantage as traders of what to do.
With the right approach, you can not only survive these downturns but emerge stronger and thrive profitably on the other side.
Unemployment & The Coming RecessionOnce the Unemployment Rate crosses the 36 mo MA this has historically marked a period of
a coming Recession. As you can tell from the RSI indicator we entered into this phase a few months ago.
I'm posting this chart because tomorrow Biden is going to tell everyone how great the Economy is doing (wait for it), but the Unemployment Chart indicates we have officially moved into the "Recession" category and there is nothing on the horizon that says this situation is going to be improving, in fact, millions of illegal aliens now flooding into the country indicates the situation will be getting much worse. Banks will begin seizing a record number of properties in foreclosures and bankruptcies as the Unemployment Rate continues upward thanks to the plans they implemented. These periods of "Boom and Bust" are completely fabricated through the policies they implement. There is no reason why this chart shouldn't be mostly a steady line with minor hills and valleys in what would be considered a growing and healthy economy. Also note the Unemployment Rate has never returned back to it's 1972 levels following the removal of the Gold Standard in 1971 by Nixon.
Yield Curve Inverts Further on Rising Recession Risk As the tides of economic fortune ebb and flow, a spectre of recession looms over the horizon, whispering in the rustling of Treasury yields and the shifting sands of macroeconomic indicators.
Recent economic data has painted a complex tableau of financial uncertainty. From declining PMI figures to a palpable deceleration in GDP growth, the economic forecast has shifted, stirring speculations that Fed may be forced to cut rates should the US economy slip into recession.
Uncertainty around the timeline of rate cuts plus a potential looming recession are causing the yield curve to invert once more. Investors can obtain exposure using CME yield futures with a reward to risk ratio of 1.6x.
RECESSION SIGNALS ARE FLASHING AGAIN
Monetary policy winds are starting to shift once more. Recent economic data, including PMI figures, and a sharply weaker GDP in the US have led participants to increase their expectations that the US Federal Reserve (“Fed”) will have to relent and cut rates in 2024.
Source: CME FedWatch
Over the past month, probability of a rate cut at 7/Nov policy meeting has increased from 42% to 47%. More notably, the probability of a second rate cut at the 18/December policy remains slightly elevated over the past week at 35%.
Typically, rate cuts suggest that the Fed is nearing its dual goals of maximum employment and stable prices. However, current expectations for rate cuts may stem from distinct reasons.
Inflation remains persistent. Fed officials remain steadfast in their battle against inflation. But inflation is stalled at 3%. Higher rates are instead starting to impact economic growth. As rates remain high, the odds of an economic slowdown rise.
On 4/June, job openings in the US fell to their lowest level in three years. On 31/May, the Chicago PMI indicator fell sharply into what is a recession territory.
Q1 GDP was revised lower last month. Weak consumption data from the US has led to expectations that GDP growth during Q2 may remain slow.
On a similar note, the household jobs survey showed full-time employment declining by 625k in May while part-time employment rose by just 286k. However, not all jobs’ data was negative. The establishment jobs survey showed strong job creation at 272k far higher than expectations of 182k. Additionally, wage growth was above expectations as weekly average earnings rose 0.4% compared to 0.2% in April.
The household survey counts each individual only once, regardless of how many jobs they have. In contrast, the establishment survey counts employees multiple times if they appear on more than one payroll.
Many observers have been calling for a recession in the US ever since the Fed raised rates to their highest level in 23 years. Yet the US economy has remained robust. Part of the reason behind the resilience has been the savings cushion that US consumers built up during the pandemic. However, with the strong inflation during the past year, most of that cushion has been spent. Consumers have already started to shift their consumption habits and credit usage (and delinquency) has been on the rise.
Credit card delinquencies are at the highest level in more than a decade and personal savings built up during the pandemic have been exhausted.
ECONOMIC DATA DRIVES BOND YIELDS LOWER AND RE-INVERTS YIELD CURVE
Throughout the past 10 days, economic releases in the US have driven bond yields consistently lower. Recent non-farm payrolls data drove a rally in yields.
Economic releases have also driven a decline in the yield spreads resulting in further inversion of the yield curve. Since the release of the PCE price index and Chicago PMI on Friday 30/May, the 10Y-2Y spread has declined by nine basis points.
The 30Y-2Y spread has performed the worst since then as it stands ten basis points lower.
Further, unlike the uptick in yields following NFP, the yield spreads continued to invert further, especially for the 30Y-2Y and 10Y-2Y spread.
HYPOTHETICAL TRADE SETUP
Historically, the yield spread between 10-year and 2-year Treasuries tends to normalize by the time a recession officially hits the US. Based on current trends, a recession, as indicated by GDP metrics, might not occur until early next year.
Currently, the yield curve is deeply inverted, and recession signals are intensifying. Moreover, the possibility of a rate cut remains uncertain. This ongoing uncertainty about the policy direction is further exacerbating the inversion of the 10Y-2Y spread.
Another factor to consider is the upcoming US elections. As the Fed strives to remain an independent authority, they may opt to avoid major policy moves before elections are concluded.
This week is set to bring several key economic updates, including the May CPI report and the Federal Reserve's revised economic projections. These projections are expected to reveal that rate cuts, previously anticipated for 2024, might be delayed further.
The volatility in economic data has made it challenging to assess the yield trends. Despite a general rise in yields, the yield curve continues to invert, particularly the 30Y-2Y spread, which has been the most adversely affected. This reflects ongoing investor concerns about long-term Treasuries as expectations for rate cuts are pushed further into the future.
Source: CME CurveWatch
Investors can obtain exposure to a further inversion in the 30Y-2Y spread using CME Yield futures. CME Yield futures are quoted directly in yield with a one basis point change in the yield representing a P&L of USD 10.
As yield futures across various maturities represent the same notional, spread P&L calculations are equally intuitive with a one basis point change in the spread between two separate maturities also equal to USD 10.
The hypothetical trade setup using the 30Y-2Y spread is described below.
• Entry: -36.5 basis points (bps)
• Target: -50 bps
• Stop Loss: -28 bps
• Profit at Target: USD 135 (13.5 bps x USD 10)
• Loss at Stop: USD 85 (8.5 bps x USD 10)
• Reward to Risk: 1.59x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Euro Area Interest Rate Reduction a signal? Euro Area Interest Rate
◻️Reduced from 4.5% to 4.25% as expected
◻️We can acknowledge the pattern & recognize its significance without jumping to any immediate conclusions
◻️Chart will need to be combined with others to make assertions, such as the 10Y/2Y Yield Spread
U.S. 10Y/2Y Yield Spread with U.S. Unemployment rate
The amount of months that have passed prior to recession initiation after the yield curve makes its first turn back up towards 0% level
◻️ Historical Average timeframe is April 2024
◻️ Historical Maximum timeframe would be Jan 2025
No guarantee that history will repeat. Again, just a chart and some data that is worth keeping an eye on. Some people state the bond market is now broken and manipulated, we should know within 12 - 18 months, or sooner.
PUKA
Economic Overview | The "Yellowstone Bubble"On Thursday, May 16th, I was sipping coffee and watching The Today Show , when a guest appeared on the program to talk about how much money YOU are supposedly making in your 401(k). Oddly enough the commentator - who was identified as the "chief business correspondent for CNN" - then reminded viewers that "you really should only look at your 401(k) once or twice a year"....
What?....WHAT?
My first thought: we don't need to be lectured on how often we should be checking on our retirement funds.
But this got me thinking, WHY do these "professional money managers" insist that working people not pay attention to their money??
I am speculating here, but I assume it is because retirement fund managers (large investment institutions) are also in the business of making money and therefore TAKING PROFIT.
Is there any evidence for this?... Well, yes:
Now factor in all of the nonsense that is constantly pumped by television commentators, meme stock pumpers, crypto fantasies, immature CEOs, and more recently - celebrities and professional athletes.
Have you ever stopped to think about the fact that there is a television commercial for $QQQ... Things have become so obscene that money managers are paying for airtime to deceptively lure regular people into buying their securities, so they can take profits, after already receiving bailouts. You've seen it, there are several versions of the same commercial and the narrative goes something like "I'm investing in QQQ for the future".
The Unemployment Rate has bottomed - there is no more growth to be had and even if we were to see unemployment trend below 3%, we can go back to the early 1950s and 1960s to see that financial markets really DON'T return much more below 3% unemployment; again this is because there is no more growth below 3% and therefore marginally less return.
Credit card delinquency is rising rapidly, thanks to inflation from Covid helicopter money.
And Household Debt-to-GDP has also bottomed. This one is particularly concerning because as we just explained, there is no more growth to be achieved from here (UNRATE). So, ask yourself: what happens if GDP falls ? Answer: household debt as a proportion of GDP rises by at leas that amount (it's a ratio - it has no choice). Expanding on this question, ask yourself: what happens if household debt continues to rise, amid maxed out unemployment? Answer: the already record profit-margins of investment banks increase to highly unstable levels, thereby further incentivizing profit-taking.
Anyway, I am calling this market the Yellowstone Bubble . Everyone is a rich tough-guy cattle rancher, everyone is a crypto professional, everyone thinks "Tesla is the future" (LOL), everyone is an AI expert, everyone is a pro because they scroll forums and listen to some podcast.
In a world that runs on "users" and "clicks" and web traffic, you must remain vigilant!
Take care!
Aggregate Rate of Return All 401(k) PlansThe purpose of this chart is to show how retirement funds are drained once returns reach 20%.
The reason this happens is because the purpose of the 401(k) is to prevent working people from ever reaching anything that resembles financial independence.
From the time we begin our careers to the time that we reach retirement age, we are CONSTANTLY told that if we do NOT use the 401(k), we are "leaving free money on the table".
But look at the chart.
The reality is: retirement funds get drained, people lose their life savings ('08), and big institutional funds (supposedly fiduciaries) get bailed out, WHILE YOU LOSE EVERYTHING YOU WORKED TO BUILD.
All I'm saying is: if you work with a "financial professional", you have a right to ask questions. You have a right to seek answers. You have a right to know what THEIR plan is for YOUR money.
Look at the S&P 500.
Ask your advisor: What causes these massive drops? Why does this occur? Am I protected?
I will build on this in my subsequent chart publishing.
United Kingdom GDP (QoQ) ECONOMICS:GBGDPQQ
Great Britain officially entered in Recession due to Two Consecutive Negative Quarters.
The British economy contracted 0.3% on quarter in Q4 2023,
following a 0.1% decline in Q3,
worse than market forecasts of a 0.1% fall, preliminary estimates showed.
The economy entered recession amid a broad-based decline in output,
namely in services (-0.2%, the same as in Q3), particularly wholesale and retail trade (-0.6%); industrial production (-1% vs 0.1%), mostly manufacture of machinery and equipment (-7%) and construction (-1.3% vs 0.1%).
On the expenditure side, there was a fall in exports (-2.9% vs -0.8%), imports (-0.8% vs -1.8%); household spending (-0.1% vs -0.9%), particularly lower spending on recreation and culture, miscellaneous goods and services, and transport; and government consumption (-0.3% vs 1.1%), namely lower activity in education and health.
Those falls were partially offset by an increase in gross capital formation (1.4% vs -1.4%), mostly other buildings and structures. Considering full 2023, the GDP in the UK edged up 0.1%.
source: Office for National Statistics
SP500 - #SPX melt up targets for cup and handle pattern.BLUE SKIES
Would you have believed it
If you were told a year ago.
When every expert was predicting a recession.
(which will come of course but when no one is expecting it )
So the conditions are set for a melt up
I believe #Bitcoin bottoms very shortly maybe this week or next
(grab some bitcoin miners!)
ENJOY THE NEXT few months!
#CNBC will trumpeting SOFT LANDING
Investors will believe interest rates are falling because of low #Inflation
Which is when the next slowdown will hit.
This cycle has been crazy and hard to follow the main trend.
The stimulus was unprecedented
Remember this cycle started in 2009... 15 years ago
We are near the end!
But first SPX to smash 5000 and than potentially we hit that 6000 number
How Does Recession Affect Financial Markets?How Does Recession Affect Financial Markets?
Recessions, marked by widespread economic decline, profoundly impact financial markets. Understanding how different markets – stock, forex, commodity, and bond – respond to these downturns is crucial for traders and investors. This article delves into the varied effects of recessions, highlighting strategies for navigating these challenging times and identifying potential opportunities for resilience and growth in the face of economic adversity.
Understanding Recessions
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale retail sales. Economic experts often cite two consecutive quarters of GDP contraction as a technical indicator of a recession. However, it's more than just numbers; it reflects a noticeable slump in economic activities and consumer confidence.
Historically, recessions have been triggered by various factors, such as sudden economic shocks, financial crises, or bursting asset bubbles. For instance, the Global Financial Crisis of 2007-2008 stemmed from the collapse of the housing market bubble in the United States, leading to a worldwide economic downturn.
Recession impacts nearly every corner of the economy, leading to increased unemployment, reduced consumer spending, and overall economic stagnation.
Effects of Recession on Different Financial Markets
A recession's impact on financial markets is multifaceted, influencing everything from stocks and bonds to forex and commodities. However, each market reacts differently. To see how these various asset classes have reacted in past recessions, head over to FXOpen’s free TickTrader platform to access real-time market charts.
General Impact on Markets
During a recession, the financial landscape typically undergoes significant changes. Investors, wary of uncertainty, often reassess their risk tolerance, leading to shifts in asset allocation. Market volatility usually spikes as news and economic indicators sway investor sentiment. This period is often marked by cautious trading and a search for safer investment havens.
Impact on Stock Markets
Stock market performance in a recession can be quite varied. Generally, stock markets are among the first to react to signs of a recession. Prices may fall as investors anticipate lower earnings and weaker economic growth. This decline is not uniform across all sectors, however.
Some industries, like technology or luxury goods, might experience steeper drops due to reduced consumer spending. Conversely, sectors like utilities or consumer staples often include stocks that do well during a recession, as they provide essential services that remain in demand.
Impact on Forex Markets
In forex, recessions often lead to significant currency fluctuations. Investors might flock to so-called safe currencies like the US dollar or Swiss franc, while currencies from countries heavily affected by the recession weaken. Central bank policies, such as interest rate cuts or quantitative easing, play a crucial role in currency valuation during these times.
Impact on Commodities
Commodities can react differently in a recession. While demand for industrial commodities like oil or steel may decline due to reduced industrial activity, precious metals like gold often see increased interest as so-called safe-haven assets.
Impact on Bonds
Bond markets usually experience a surge in demand during recessions, particularly government bonds, seen as low-risk investments. As investors seek stability, bond prices typically rise, and yields fall, reflecting the increased demand and decreased risk appetite.
Types of Stocks That Perform Well During a Recession
During economic downturns, certain stock categories have historically outperformed others. The stocks that go up in a recession generally belong to sectors that provide essential services or goods that remain in demand regardless of the economic climate.
Consumer Staples: Companies in this sector, offering essential products like food, beverages, and household items, may appreciate during a recession. As these are necessities, demand usually remains stable even when discretionary spending declines.
Healthcare: Healthcare stocks often hold steady or grow during recessions. The demand for medical services and products is less sensitive to economic fluctuations, making this sector a potential safe haven for investors.
Utilities: Utility companies typically offer stable dividends and consistent demand. Regardless of economic conditions, consumers need water, gas, and electricity, providing these stocks with a buffer against recessionary pressures.
Discount Retailers: Retailers that offer essential goods at lower prices can see an uptick in business as consumers become more budget-conscious during tough economic times.
Types of Stocks to Hold in a Recession
While there are some stocks that perform well in a recession due to sustained demand for their products, there are other types of stocks that are valued for their financial resilience and potential to provide long-term stability.
Blue-Chip Stocks: These are shares of large, well-established companies known for their financial stability and strong track records. During recessions, their history of enduring tough economic times and providing dividends makes them attractive.
Value Stocks: Stocks that are undervalued compared to their intrinsic worth can be good picks. They often have strong fundamentals and are priced below their perceived true value, with the potential to rebound strongly as the economy recovers.
Non-Cyclical Stocks: These stocks are in industries whose services or products are always needed, like waste management or funeral services. Their demand doesn’t fluctuate significantly with the economy, which may offer stability.
The Role of Government and Central Banks During Recessions
During recessions, governments and central banks play a crucial role in stabilising financial markets.
Government interventions often include fiscal policies like increased spending and tax cuts to stimulate the economy. Central banks may reduce interest rates or implement quantitative easing to increase liquidity in the financial system.
These actions can bolster investor confidence, stabilise markets, and encourage lending and spending. However, their effectiveness can vary based on the recession's severity and the timeliness of the response.
The Bottom Line
Navigating recessions requires understanding their multifaceted impact on financial markets. From stocks and bonds to forex and commodities, each sector reacts uniquely, offering both challenges and opportunities.
To take advantage of the various opportunities a recession presents, opening an FXOpen account can be a strategic step. We provide access to a broad range of markets and trading tools designed to help traders adapt to a shifting economic landscape.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
$SHOP 10D wants $68 if we stay under $80Of course, all ideas are my opinion alone. SHOP went a bit crazy last week but still rejected the same gap from the Winter 22' pullback. Looking at this head and shoulders on the daily, PA seemingly looking for a touch of the gap below around $64. May have to wait for the first week of April for the move to be underway. Keep on Watch, with a Bullish Market, $82+ possible before the end of the week for a Bull Trap setup as stock is breaking trendlines of the possible larger timeframe bear flag its been in since Spring 22' .... Stay Patient.. after high $60s I'll be looking for a rally to fill gap above at $89.12
Bearish Hedging Strategy LONG inverse ETFsThe idea is shown on this 120 minute. With the new sticky inflation data, the writing is on the
wall. Likely the rate cut will be kicked down the time road. When is in consideration may be
a rate hike in the meanwhile. Mortgage rates unchanged makes the banks suffer. Loan
applications are down. Treasuries are being affected. So are tech stocks that have a growth
perspective as a fundamental basis for anticipated futures growth propelling share price.
This hedging idea is a way to survive or even thrive in a chaotic and volatile market
environment and a means to treat an overload of bullish bias with an antidote of sorts.
GIS weekly Cup formation progress LONGGIS a consumer staples is set up long and is a good defensive play for recession or black swan
events. The idea is on the chart. I am long since the first of the year. Adding for small dips
on the daily or 180 minute chart. Food is about as basic as it gets. GIS is a market leader.
TSN idea also. What about McDonalds?
CHARTOLOGY 101 --- 43 years in the makingThe bigger the pattern
the bigger the consolidation
the more explosive the move
how about this Chart Porn?
Cup and handle
I expect the log tgt not only to be made but surpassed given yesterdays event's in #baltimore
Yup Massive east coast supply chain disruptions to be expected
Ports jammed
Aviation fuel disruptions
Major economic ripples could transpire form this
the east coast is home to 120 million people I believe ..
Wow
Stock up on your Cadbury's and many other things ... :0
VIX - forecast 2024The market's recent rally (indices are up 25% since November!) feels frustrating. It doesn't seem to reflect the economic realities we're facing.
Inflation is cooling, but it's still above targets.
The labor market is strong, which might seem good, but it could be unsustainable with high interest rates.
We're seeing layoffs, which contradicts the market's optimism.
Maybe I'm missing something, but the disconnect between the market and the economy is concerning.
VIX has been rangebound since November 2023 and recently generated a positive MACD signal.
Looking ahead, the FOMC statement and Fed rate decision are later today. Historically, these events haven't triggered major market swings. A significant correction might require unexpected data, particularly a surprising labor market report.
Trade safe!
The Great Reset
After Trading for some time ive gotten into all types of analysis, i personally found Elliot waves and Fibonacci retracements the most interesting, i look at long term and short term trends, and the other day i was looking at the S&P500 and DJI over large spans of time, and the more you trade using patterns and waves things just click when you see them, I spotted what i find to be quite the interesting pattern, a rising wedge going all the way back to 1896 for the DJI, and 1908 for the SPX respectively. This is all theory and chart analysis IS NOT full proof its NOT financial advice its NOT a warning its just me looking way back and you can too ive plugged in the charts i was examining and i must say its a bit scary to think about and if the wedge plays out properly potentially the greatest wealth transfer in history could occur. Let me know what you all think am i crazy or am i crazy lol
AMEX:SPY SP:SPX TVC:DJI
Massive US Unemployment Move Inbound
On the FRED:UNRATE dataset, we can see that since 1953, every time the unemployment rate make a significant move above the 24 months SMA, with the sole exception of October '67, we saw a large spike in unemployment allong with a recession.
Currently, FRED:UNRATE rose above the 24 months SMA in August 2023 and has been stochastically moving higher ever since. Historically, this means that we can expect an aggressive move in unemployment in the following months.
Bitcoin UPDATE!ITS NOT FINANCIAL ADVICE!
as i can see last time bitcoin did not breake 49k and had hard resistance and in Weekly Chart bitcoin is showing alot of bearish signs no matter what u put on chart is always showing for bearish my idea is that Bitcoin can retest again 45-49K zone if it dosnt manage to breakeout we will see again the lows which is gonna be good for buying and holding till bullrun which i expect to be on year 2025 and its better to be 50% in and 50% out in this moment
NEWS ABOUT Grayscale FOR ETF!
grayscale momentaly is selling btc from their trust (theres a chance because the fees are too high for GBTC)
Germany In Recesion!
germany is the first country on EU to go in recession (Bearish Sign Too) and i expect since germany was the first country the others will go too
High Bank Loans FEES!
ETC,ETC,ETC
W Pattern Setup on NQJust as in 2002-2003 when America invaded Iraq looking for WMDs (emphasis on the W). George W Bush (again, W) went to eliminate WMDs in Iraq. When said WMDs were not found, it was time to short the Iraq war. However there is a long and profitable path before us until our lies are exposed and we would be fools to not take advantage of this opportunity.
We have the W, all we need is the MDs (I have a few friends that are doctors). This play has tremendous upside potential as we would be well in profit before anyone discovers our misdeeds.
Macro Monday 31 ~ Dallas Fed Manufacturing Index (Key Levels)Macro Monday 31
U.S. Dallas Fed Manufacturing Index
This Index is compiled from a monthly survey conducted by the Federal Reserve Bank of Dallas to assess the health of manufacturing activity in the state of Texas. It provides insight into factors such as production, employment, orders, and prices, offering a snapshot of economic conditions in the region.
Why is the Dallas Fed Manufacturing Index Important?
▫️ As stated above the index covers manufacturing activity in the state of Texas, the state of Texas ranks 2nd only to California in factory production & comes in at 1st as an exporter of manufactured goods, thus Texas is an important state for gauging manufacturing & production in the U.S. economy.
▫️ Texas also contributes an incredible c.10% towards the U.S. Manufacturing gross domestic product making the index an important metric to consider towards potential GDP trends in the U.S.
▫️ The Dallas Fed Manufacturing Index (DFMI) is one of several regional manufacturing surveys that feed into the national Purchasing Managers Index (PMI). The PMI is released later this week on Thursday 1st Feb thus the DFMI on Monday will give us an early indication of the potential direction of the PMI later in the week. FYI, I will be covering the PMI for you on Thursday so stay tuned for that.
How to read the index?
A reading above 0 indicates an expansion of the factory activity compared to the previous month; below 0 represents a contraction; while 0 indicates no change.
The Chart
The chart only dates back to 2005 so we have a limited dataset however we can still see definitive levels of importance and trends over this shorter historic backdrop.
A few findings from the chart:
The + 36.8 Level
Since December 2005 any time we have hit the +36.8 level on the chart it has typically represented a peak in manufacturing and production signaling that a decline would likely follow. This has occurred 3 times and each time within 20 – 23 months of this +36.8 peak we had a recession or a financial crisis.
1) December 2005
21 Months later we had the Great Financial Crisis.
2) June 2018
20 months later we had the COVID-19 Crash.
3) April 2021
23 months later the U.S Banking Crisis occurred in March 2023 resulting in 3 small to mid size banks failing.
- The remaining banks being saved by the Bank Term Funding Program (BTFP) which appears to have successfully contained the contagion for now. The BTFP is ceasing in March 2024 👀
▫️ We can see above that in the event we reach the +36.8 level in the future, history informs us that within 20 – 23 months major economic issues will likely present. If we had known this back in April 2022. After April 2022 the S&P500 fell 15% to its recent lows.
▫️ The National Bureau of Economic Research (NBER) could declare the current period we are in as a soft recession. For the last six recessions, on average, the announcement of when a recession started was declared 8 months after the fact meaning we will would only get confirmation of a recession once we are 6 - 8 months into it. Its worth noting that some recessions were confirmed by the NBER after the recession was over.
- 36.8 Level
A reading below the -36.8 level has historically confirmed a recession. We have not hit this level since the COVID-19 Crash with May 2020 being the last time we have been at this level.
Periods in Contractionary Territory
There have been 2 previous periods where we have remained in contractionary territory for greater than 6 months. These are worth reviewing as we have been in contractionary territory for the 20 months now (April 2022 - Present).
1) Sept 2007 – Nov 2009:
We fell into contractionary territory during the Great Financial Crisis for 26 months. From 2009 to 2016 the index seemed week oscillating around the 0 level and not really breaking out into persistent expansionary territory until 2017 forward.
2) Jan 2015 – Oct 2016:
We fell into contractionary territory for 21 months however there was no recession.
3) Apr 2022 – Present:
We are currently on month 20 of contraction. Now this could be just like point 2 above whereby we recover to expansionary territory in month 21 or 22 (Jan - Feb 2024) however if we do not, we are moving towards a timeline similar to point 1 which was the 26 month Great Financial Crisis. Q1 of 2024 will be very revealing in terms of what we can expect next. In the event we end up in contraction for 26 months or if we hit the -36.8 level we can presume, based on history, that we likely have a recession on our hands. And, if we recover into expansionary territory maybe we have got away with it this time 🙂
You can clearly see that the Dallas Fed Manufacturing Index is significant for assessing the U.S. economy because it provides timely insights into the health of one of the nation's key economic sectors: manufacturing & production. Since Texas is a major hub for manufacturing activity, trends observed in the Dallas Fed index can offer valuable indications of broader economic trends. It is one of several regional indices that contributes to a comprehensive understanding of the manufacturing landscape, aiding policymakers, investors such as ourselves, and businesses in making informed decisions about the state of the economy.
The current economic environment just gets more and more interesting every week
Thanks for coming along again folks 🫡
PUKA
RECESSION PROABILITY SIGNIFICANTLY INCREASES JAN - JUN 202410Y/2Y Yield Spread & Unemployment Rate
Originally shared back in July 2023 (see below charts)
Its interesting to see that the yield curve is rising fast (up towards the 0 level)
We are reaching into dangerous recessionary territory. No guarantees, just a significantly increased probability.
Continuous jobless claims are reaching pre-recession warning levels in both time and volume. Meaning more and more people are becoming unemployed and remaining unemployed for longer. More info in links below.
The average interest rate pause timeframe is closing in fast at June 2024 also(Contained in Charts below also).
Its time to pay very close attention. The initial 6 months of this year
Stay safe out there
PUKA
SPX Double Top - January 2024 Recession: Target 1599Hello everybody, I have been keeping a close eye on our economy and indices and it looks like we are already in a recession. This will be one of the biggest recessions in history and will make 1929 and 2008 look like a correction. As job layoffs continue, we expect this to increase dramatically for the next couple of years. On a technical level we are witnessing a major double top
2024 US Recession | Key Factors2000 DOT-COM CRISIS
The dot-com crisis, also known as the "dot-com bubble" or "dot-com crash," was a period of economic turbulence that affected the technology and telecommunications sectors in the late 1990s and early 2000s. Here are some key points:
Euphoria Phase: In the 1990s, there was a boom in the technology and dot-com industry fueled by irrational investor euphoria. Many companies secured significant funding, even if they had weak or nonexistent business models.
Excessive Valuations: Valuations of technology companies skyrocketed, often based on exaggerated growth projections and unrealistic expectations. This led to rampant speculation in financial markets.
Bubble and Collapse: In 2000, the dot-com bubble began to burst. Many investors realized that numerous technology companies were unable to generate profits in the short term. This triggered a massive sell-off of stocks and a collapse in tech stock prices.
Economic Impacts: The crisis had widespread economic impacts, with the loss of value in many technology stocks and the bankruptcy of numerous companies. Investors suffered heavy losses, and this had repercussions on the entire stock market.
Economic Lessons: The dot-com crisis led to a reassessment of investment practices and taught lessons about the importance of carefully analyzing companies' fundamentals and avoiding investments based solely on speculative expectations.
Following this crisis, the technology sector experienced a correction but also contributed to shaping the industry in a more sustainable way. Many companies that survived the crisis implemented more realistic and sustainable strategies, contributing to the subsequent growth and development of the technology sector.
2007-2008 FINANCIAL CRISIS
The 2007-2008 financial crisis was a widespread event that had a significant impact on the global economy. Here are some key points:
Origins in the Subprime Mortgage Crisis: The crisis originated in the U.S. real estate sector, particularly in subprime mortgages (high-risk). An increase in mortgage defaults led to severe losses for financial institutions holding securities tied to these loans.
Spread of Financial Problems: Losses in the mortgage sector spread globally, involving international financial institutions. Lack of transparency in complex financial products contributed to the crisis's diffusion.
Bank Failures and Government Bailouts: Several major financial institutions either failed or were on the brink of failure. Government interventions, including bailouts and nationalizations, were necessary to prevent the collapse of the financial system.
Stock Market Crashes: Global stock markets experienced significant crashes. Investors lost confidence in financial institutions, leading to a flight from risk and an economic contraction.
Impact on the Real Economy: The financial crisis directly impacted the real economy. The ensuing global recession resulted in the loss of millions of jobs, decreased industrial production, and a contraction in consumer spending.
Financial Sector Reforms: The crisis prompted a reevaluation of financial regulations. In response, many nations implemented reforms to enhance financial oversight and mitigate systemic risks.
Lessons Learned: The financial crisis underscored the need for more effective risk management, increased transparency in financial markets, and better monitoring of financial institutions.
The 2007-2008 financial crisis had a lasting impact on the approach to economic and financial policies, leading to greater awareness of systemic risks and the adoption of measures to prevent future crises.
2019 PRE COVID
In 2019, I closely observed a significant event in the financial markets: the inversion of the yield curve, with 3-month yields surpassing those at 2, 5, and 10 years. This phenomenon, known as an inverted yield curve, is generally considered an advanced signal of a potential economic recession and has often been linked to various financial crises in the past. The inversion of the yield curve occurred when short-term government bond yields, such as those at 3 months, exceeded those at long-term, like 2, 5, and 10 years. This situation raised concerns among investors and analysts, as historically, similar inversions have been followed by periods of economic contraction. Subsequently, in 2020, the COVID-19 pandemic occurred, originating in late 2019 in the city of Wuhan, Hubei province, China. The virus was identified as a new strain of coronavirus, known as SARS-CoV-2. The global spread of the virus was rapid throughout 2020, causing a worldwide pandemic. Countries worldwide implemented lockdown and social distancing measures to contain the virus's spread. The economic impact of the pandemic was significant globally, with sectors such as tourism, aviation, and hospitality particularly affected, leading to business closures and job losses. Efforts to develop a vaccine for COVID-19 were intense, and in 2020, several vaccines were approved, contributing to efforts to contain the virus's spread. In 2021, the Delta variant of the virus emerged as a highly transmissible variant, leading to new increases in cases in many regions worldwide. Subsequent variants continued to impact pandemic management. Government and health authorities' responses varied from country to country, with measures ranging from lockdowns and mass vaccinations to specific crisis management strategies. The pandemic highlighted the need for international cooperation, robust healthcare systems, and global preparedness to address future pandemics. In summary, the observation of the yield curve inversion in 2019 served as a predictive element, suggesting imminent economic challenges, and the subsequent pandemic confirmed the complexity and interconnectedness of factors influencing global economic health.
2024 Outlook
The outlook for 2024 presents significant economic challenges, outlined by a series of critical indicators. At the core of these dynamics are the interest rates, which have reached exceptionally high levels, fueling an atmosphere of uncertainty and impacting access to credit and spending by businesses and consumers. One of the primary concerns is the inversion of the yield curve, manifested between July and September 2022. This phenomenon, often associated with periods of economic recession, has heightened alarm about the stability of the economic environment. The upward break of the 3-month curve compared to the 2, 5, 10, and 30-year curves has raised questions about the future trajectory of the economy. Simultaneously, housing prices in the United States have reached historic highs, raising concerns about a potential real estate bubble. This situation prompts questions about the sustainability of the real estate market and the risks associated with a potential collapse in housing prices. Geopolitical instability further contributes to the complexity of the economic landscape. With ongoing conflicts in Russia, the Red Sea, Palestine, and escalating tensions in Taiwan, investors are compelled to assess the potential impact of these events on global economic stability. The S&P/Experian Consumer Credit Default Composite Index, showing an upward trend since December 2021, suggests an increase in financial difficulties among consumers. Similarly, the charge-off rate on credit card loans for all commercial banks, increasing since the first quarter of 2022, reflects growing financial pressure on consumers and the banking sector. In this context, it is essential to adopt a prudent approach based on a detailed analysis of economic and financial data. The ability to adapt to changing market conditions becomes crucial for individuals, businesses, and financial institutions. Continuous monitoring of the evolution of economic and geopolitical indicators will be decisive in understanding and addressing the challenges that 2024 may bring.
