Weekly Market Recap – July 18th

The material in each presentation has been prepared by the respective participant for informational purposes only, and does not, nor does it intend to, provide tax, legal, accounting, or investment advice. This information is of a general nature and does not address the circumstances of any particular individual or entity. You should consult a qualified advisor on your situation to answer specific questions.

“Recession” is the new trend

It’s not just investors who have become fixated on the possibility of a looming global economic recession. The number of times the word ”recession” has been mentioned in news articles has surged to levels last seen during the height of the Covid-19 pandemic in 2020, according to data compiled by Bloomberg.

While two years ago the number of recession mentions came down quickly as global monetary and fiscal aid helped fuel a rapid recovery, this time it remains consistently elevated, suggesting the concerns won’t be dispelled as easily.

Source: Bloomberg

A classic recession signal flashes red!

Economist often look towards the difference between 2 and 10-year treasury yields to gauge how bond investors are projecting economic outlook. History has shown that when the spread goes negative, a recession follows short after

Where we stand now, we are facing one of the deepest inversion between these two yields since the “Dot Com” bubble.

Source: Bloomberg

Banks go on sale

Banks enter second-quarter earnings season as one of the worst performing sectors in the stock market this year, but historically cheap valuations could help lure back investors. The KBW Bank Index has plunged more than 24% this year amid fears that the US economy is headed for a recession, dragging its blended forward 12-month price-to-earnings ratio down to a level it has only seen a handful of times since 2012.

Source: Bloomberg

How pessimistic are we now?

A Federal Reserve Bank of Chicago survey on the outlook for the US economy decreased to minus 60 in June, the worst reading in data back to 2013. Just 17% of respondents expected an increase in economic activity over the next 12 months. A zero-index value indicates, on balance, a neutral outlook for activity. Since 2013, the index has averaged 25 and it reached a series high last summer at 83 before tumbling over the last 10 months.

Sources: Bloomberg, Chicago Federal Reserve

Revisiting commodities and the dollar

With the over extension of the dollars strength and the new interest rate regime coming into full effect, investors are beginning to evaluate the longevity of the bull market in commodities.

If we observe historically weekly levels between the dollar and the Bloomberg commodities index, we can clearly see that the inverse relationship has held between the two since 2005 and that current commodity levels are due for a retracement.

Source: Bloomberg