Folks, a lot is going on out there in the markets.
It doesn’t take very long to see how much trouble every day investors face these days.
When you see how the stocks and bonds have moved so far this year, an unmistakable trend appears… stocks appear to have peaked as investors flee to bonds.
Add to that a pumped-up U.S. Dollar, punishing commodities this year to date…
Heading into the Memorial Day period, what I see here are two key takeaways.
First, bonds are displacing stocks as the go-to-asset class.
Second, the U.S. Dollar is heading to new highs.
Why is that?
Because both bonds and the U.S. Dollar share the same theme – namely a flight-to-quality.
With risks rising, bonds are safer than stocks and the U.S. Dollar is safer than any other currency.
One Ferocious Triple Top Forming
Taking a longer view back to 2017, one ferocious triple top in the U.S. markets is fast approaching.
Take your pick. The SP500 Index, the Dow, the Nasdaq and the NYSE Index are all pointing to a top …
Some faster, some slower, but all are highly correlated.
Why is this happening?
GDP Is Tumbling
With our Storm Tracker at 45% and GDP tumbling, no wonder investors are seeking safety.
The Atlanta Fed is on the cutting edge for forecasting changes in GDP, a favorite here at Critical Signals Report.
The GDP-NOW Chart below tracks a range of forecasts in GDP, including consensus forecasts against those of the Atlanta Fed.
See those negative trends …
• The Blue-Chip consensus forecast is falling.
• The Atlanta FED GDP-NOW forecast is below consensus.
• AND the GDP-NOW forecast is falling … again.
But there’s more …
Economic Activity Is Sliding
Driving the sliding GDP forecasts are tumbling economic indicators, like the Chicago Fed’s Activity Index below.
In my most recent post, I displayed how Industrial Production was falling, along with Leading Indicators put out by the Conference Board, a highly-regarded think tank that delivers trusted insights for what’s ahead.
The chart below adds fuel to the fire – economic activity is tumbling, suggesting trouble ahead.
But there’s more … this one is key …
Fed Funds Interest Rates Have Stopped Rising
Here’s the mea culpa chart that sums it all up – acknowledgement by Mr. Market that Wall Street has indeed sinned by thinking they can merrily raise interest rates at will.
I’ve seen that bonds and the US dollar are recently popular because growth and economic activity are sliding.
Well … because they’re sliding (and following that big ‘ka-chunk’ last December), the U.S. Fed stopped raising interest rates – a movie I’ve seen before, charted below.
See those red boxes in the chart above?
They surround previous periods when the Fed has stopped raising short-term interest rates – which has always occurred JUST PRIOR to recession (outlined by those red, vertical cones).
Notice also that these interest rate plateaus are occurring at lower-and-lower levels of interest rates with the passage of time.
Interest rates before the 2001 recession were about 6.5% … before the 2018 Great Recession, about 5.2% … and today, before the next recession, rates are far less at 2.38%.
The trend is downward, which means this time around, should rates fall again, they’ll be headed to zero – and that hasn’t worked out so well for our Japanese and European friends.
By the end of 2019, trends suggest a Fed rate decrease of some 25-75 basis points.
Last stage of the melt-up?
What to do?
There will be more … Stick with the Critical Signals Report
As Storm Tracker rises or falls from a current reading of 45%, I’ll signal how much of your portfolio to allocate to cash, and where to allocate the remainder – namely to stocks, bonds and alternative investments (be they long or short their respective markets) that are in favor, whether in a melt-up or a melt-down.
I’ll be long in a melt-up, but when that nasty melt-dowfn comes … expect short-side suggestions, plain vanilla or with leverage, which could make you a TON OF MONEY once the markets turn.
There’s always something to do! And I’m going to tell what that something is, with some precision.
More on that in the coming Critical Signals Report newsletters, but for now, be safe ….
5 responses to “Secure Your Investments Now with These Two Charts and More”
May 26 2019