Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
The ASX Bull-Bear Market indicator increased from 54% to 64%, returning to a mild bull market.
Four of six indicators from Australia and China (our largest trading partner) now signal risk-on. These have a combined weighting of 60% in the ASX Bull-Bear Index. The US Bull-Bear Index, unchanged, makes up the remaining 40%.
The ASX 200 Financials index ($XFJ) closed above 9260, signaling risk-on, and reversing the bear signal from March 7, 2025.
However, Australian private dwelling approvals remain weak. The 3-month moving average at 15.2K for April is close to its red signal line at 15.1K. A cross below would signal risk-off.
Stock Pricing
ASX stock pricing jumped to 85.73 percent, from a low of 67.85 eight weeks ago, approaching the high of 85.83 from February 2025. The reading warns that stock pricing is in the extreme range.
We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.
A 20% trimmed mean of forward PE for the ASX 20 reached a new high of 22.57.
Conclusion
The ASX signals a return to a mild bull market, but valuations are now extreme, increasing the risk of a significant drawdown.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
Our Bull/Bear Market indicator remains at 60%, with two of five leading indicators signaling risk-off:
Employment in cyclical sectors—manufacturing, construction, and transport and warehousing—remains strong at 27.8 million, with no sign of the typical contraction that precedes a recession.
However, the 12-month average of heavy-weight trucks declined to 39.0K units in May, just a smidgen from a 38.7K bear signal.
Stock Pricing
Stock pricing increased to 96.70, compared to 95.04 seven weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.
We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.
Conclusion
We remain in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing is extreme, indicating risk of a significant drawdown.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
A stronger-than-expected BLS labor report buoyed stocks
The stronger jobs figures reduce the chance of further Fed rate cuts
Speculators are covering positions in long-term bonds, causing yields to rise
Higher long-term yields are, in turn, bearish for stocks
The S&P 500 was buoyed by a stronger-than-expected labor report, with little sign of the economy slowing from President Trump’s flip-flop on tariffs. A breakout above strong resistance between 6000 and 6100 would signal a fresh advance, but we advise caution as it could be a bull trap.
Financial Markets
Financial market liquidity has improved, with the Chicago Fed National Financial Conditions Index declining to a revised -0.476 on May 30.
A sharp fall in the Treasury General Account (TGA) at the Fed injected more than $200 billion into financial markets in recent weeks, but that is not sustainable for long.
A declining spread on Moody’s Baa corporate bonds shows the beneficial effect on credit markets.
Treasury Markets
Speculators anticipating a series of Fed rate cuts are covering positions in long-term Treasuries, lifting the yield to 4.5%. Follow-through above 4.5% would offer a short-term target of 4.8%, prompting further action by Treasury Secretary Bessent to keep a lid on long-term rates. However, he can only do so much without the Fed’s help.
Economy
Employment in cyclical sectors—manufacturing, construction, and transport and warehousing—remains strong at 27.8 million, with no sign of the typical contraction that precedes a recession.
Unit sales of heavy-weight trucks are declining gradually rather than the steep fall that typically precedes a recession.
However, declining real manufacturers’ new orders for capital goods (excluding defense and aircraft) for April, adjusted by the producer price index (for capital goods), warn of a sharp fall in new capital investment.
Labor Market
Jobs grew by a better-than-expected 139 thousand in May. However, the figure is seasonally adjusted and likely subject to revision.
Continued claims increased to 1.9 million by May 24, but the unemployment rate remained 4.2% in May, well below our 5.0% warning level.
Growth in aggregate hours worked slowed to an annualized rate of 1.0%, warning of a similar decline in GDP growth in the second quarter.
Temporary jobs have contracted to 2.5 million, reinforcing the bearish sign from declining growth in hours worked.
The gap between job openings and unemployment has narrowed, indicating that the labor market is now in balance.
However, average hourly earnings continue to grow at close to 4.0%, signaling underlying inflationary pressures in the economy.
Dollar & Gold
The US Dollar Index continues to test long-term support at 100. Follow-through below 98 would offer a target of 90, warning of capital outflows and a strong bear signal for the bond market.
Gold is patiently testing resistance at $3,400 per ounce, waiting for a bear signal from the Dollar Index. A breakout would strengthen our target of $4,000 by the end of the year.
Silver made a sharp breakout above resistance at $34 per ounce. We expect retracement to test the new support level. Respect will likely confirm the breakout, but, having been burned before, we remain wary of a bull trap.
Conclusion
The rise in stocks is likely short-lived as rising long-term interest rates will likely spoil the party. The Fed is unlikely to heed President Trump’s call for a 100 basis-point cut:
“Go for a full point, Rocket Fuel,” Trump said in a post on Truth Social, adding that the Fed could increase rates again if inflation reignited. (Reuters)
The labor market remains in balance, and signs that the economy is slowing more likely reflect the impact of poor trade policy rather than too-high interest rates.
All eyes should be on the dollar. A Dollar Index fall below 98 would warn of capital outflows—a bear signal for bonds and stocks and a bull signal for gold.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
President Trump announces steel and aluminum tariffs will increase from 25% to 50%
Input costs for US manufacturers are expected to soar
Spending is expected to slow after the introduction of tariffs in April
The economic outlook is clouded with uncertainty, and the risk of a recession is rising
President Trump accused China of “totally violating its agreement” with the United States last week. (Reuters)
The Geneva agreement concluded between Treasury Secretary Bessent and his Chinese counterpart called for a 90-day pause in increased tariffs and for China to lift restrictions on exports of critical materials such as rare earths needed for semiconductor, electronics, and defense applications.
According to a US trade representative, the Chinese are moving slowly on granting export licenses for critical materials. The automobile industry is already warning that shortages of rare earth magnets could halt production in a matter of weeks.
The Chinese slow-walking of export licenses appears to be retaliation for the US last week imposing license requirements, and revoking some licenses, for exports of design software and chemicals for semiconductors, butane and ethane, machine tools, and aviation equipment.
In another blow to the auto industry, President Trump announced that he will increase tariffs on steel and aluminum imports from 25% to 50%. Steelmakers are expected to benefit from higher domestic prices, boosting output, but automobile manufacturing, heavy engineering, and construction industries will likely bear the costs.
Steel exports from Canada and Mexico will be most affected, but South Korea, Germany, and Brazil are also expected to suffer. The EU has threatened retaliatory measures if the issue cannot be resolved.
Aluminum imports are likely to continue despite the increased tariffs. Bauxite and electricity are the two primary input costs of smelters, and domestic US smelters will struggle to match the low-cost hydroelectric power of global competitors.
Financial Markets
The S&P 500 is testing the band of resistance at 6000, but short weekly candles indicate hesitancy.
Strong liquidity supports financial markets, with the Chicago Fed National Financial Conditions Index falling to -0.606, signaling easy monetary conditions.
10-year Treasury yields are testing support between 4.4% and 4.5%, but the weak dollar warns of capital outflows that are expected to send long-term yields higher.
JPMorgan CEO Jamie Dimon says, “You are going to see a crack in the bond market. It is going to happen…. I’m telling you it’s going to happen….”
Economy
Former Fed economist Dr Lacy Hunt warns that the US economy is slowing, with a higher than 50% probability of recession. He warns that the economy is far weaker than generally understood, and what markets are not considering is that spending brought forward to front-run tariffs is likely to cause a sharp drop in spending in the next few months.
A recession would also cause the fiscal deficit to increase sharply, by at least another 2.0% of GDP, adding further stress on the bond market.
The ISM manufacturing PMI declined to 48.5% in May, indicating a long-term contraction.
Manufacturing inventories surged in March as manufacturers brought forward purchases to get ahead of April’s tariff increases.
Imports also surged in the first quarter, followed by a steep plunge in May.
Exports are contracting at a similar rate.
Prices is the only sub-index that has surged, warning of steeply rising input costs.
Crude Oil
OPEC+ decided to increase production targets by 411.000 barrels per day in July, which is equal to the increases in May and June.
However, in a sign of shrinking global trade, China’s seaborne imports declined by more than a million barrels per day in May. Kpler estimates imports at 9.43 mbpd compared to 10.46 mbpd in April and 10.45 mbpd in March. (Reuters)
Brent crude is likely to re-test support at $60 per barrel, and breach would offer a target of $50.
Dollar & Gold
Capital outflows are weakening the dollar. The US Dollar Index has broken support at 100, and follow-through below 98 would confirm another decline with a target of 90.
Gold rallied to test the band of resistance at $3,400 per ounce. A breakout above $3,500 would strengthen our target of $4,000 by the end of 2025.
Conclusion
Due to high levels of uncertainty, consumers and corporations are expected to defer capital expenditures in the months ahead. The drop in spending is likely to be accelerated by the build-up in inventories and the bringing forward of expenditures to get ahead of tariff increases in April.
Contracting imports and exports in the manufacturing sector warn that the economy will slow. Falling crude oil imports in China paint a similar outlook, suggesting a global recession.
A recession would increase the deficit and further stress the bond market, which is already concerned about spiraling debt levels.
A falling dollar and rising gold price warn of capital outflows from US financial markets. JPMorgan CEO Jamie Dimon tells us to prepare for a coming crack in the bond market. That would mean higher long-term yields and sharply lower stock prices, likely boosting demand for gold even higher.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
The ASX Bull-Bear Market indicator remains at 54%, signaling a mild bear market.
Three of the six indicators from Australia and China (our largest trading partner) signal risk-off. These have a combined weighting of 60% in the ASX Bull-Bear Index. The US Bull-Bear Index, also unchanged, makes up the remaining 40%.
The ASX 200 Financials index ($XFJ) threatens to break out above 9260 on the weekly chart. A higher close would signal a new uptrend, reversing the bear signal from March 7, 2025.
Also, China’s NBS manufacturing PMI improved to 49.5 in May. A decrease below 49 would have triggered a recession signal.
However, Australian private dwelling approvals are weakening. The 3-month moving average at 15.2K is close to reversing below its red signal line (15.1K), which would trigger a recession signal.
Stock Pricing
ASX stock pricing increased to 80.75 percent, from a low of 67.85 seven weeks ago, approaching the high of 85.83 in February 2025. The reading above 80 percent signals that stock pricing is back in the extreme range.
We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.
Conclusion
The ASX signals a mild bear market, but the risk of a significant drawdown is now extreme.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
Our Bull/Bear Market indicator remains at 60%, with two of five leading indicators signaling risk-off:
The National Financial Conditions Index from the Chicago Fed dipped to -0.606, signaling monetary easing.
However, outside of the 2022 COVID pandemic, the University of Michigan index of current economic conditions is at the lowest recorded level since its inception in 1960.
Also, continued unemployment claims rose to 1.92 million on May 17, a 39% increase in the four-week moving average from its low in June 2022. However, the unemployment rate remains at 4.2% and does not warrant serious concern until it reaches 5.0%.
Stock Pricing
Stock pricing increased to 96.51, compared to 95.04 six weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.
We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.
Conclusion
We remain in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing is extreme, with elevated risk of a significant drawdown.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The signal-to-noise ratio is exceedingly high, with market volatility obscuring the underlying trend.
Ignore the background noise of Trump policy flip-flops and focus on the effect of rising fiscal debt and long-term interest rates.
The S&P 500 is consolidating below 6000, a bullish sign. A breakout above 6100 would signal another advance, but the index has become a poor leading indicator of the economy. Instead, it is dominated by large passive investment flows into index ETFs, surges in liquidity, and the media cycle, which attempts to parse President Trump’s intentions by his daily sermon from the mount of Truth Social.
The bond market takes a longer-term view and is far more prescient than the equity market. Ten-year Treasury yields are gradually rising as international investors slowly withdraw, without wanting to trigger a panicked rush for the exits. Respect of the 50-week weighted moving average would signal another test of resistance at 4.75%.
The dollar is weakening, with the US Dollar Index testing the band of support between 98 and 100. A breach of 98 would warn of another decline, confirming our target of 90.
Gold is in a strong uptrend, reflecting the same outflow from US capital markets, with a bullish consolidation below 3400 on the weekly chart below. Breakout above 3500 would strengthen our target of 4000 by the end of 2025.
Consumers
A rebound in consumer confidence buoyed stocks, but the May reading of 98 remains in the same range as the 2020 COVID pandemic.
Consumer expectations rallied to 72.8, but remains below the threshold of 80, which typically warns of a recession ahead.
Economy
Manufacturers’ new orders for non-defense capital goods, excluding aircraft, were below their 2022 peak, at $74.8 billion in April.
That seems pretty healthy, until we adjust for inflation. The chart below, adjusted by the producer price index for capital equipment, warns of a sharp decline in new orders that could easily reach its 2008 low if current instability continues. Corporations are likely to defer decisions on new capital spending until there is a stable outlook.
Conclusion
Ignore the background noise of policy flip-flops and focus on the underlying signal in capital markets. Heightened uncertainty has triggered a steady capital outflow. If you destroy a brand—the USA bastion of democracy and economic stability—it is practically impossible to restore it.
The situation is aggravated by corporations deferring orders for new capital equipment because of the uncertainty. Declining capital investment is likely to tip the economy into recession.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
The ASX Bull-Bear Market indicator is unchanged at 54%, signaling a mild bear market.
Three of six indicators from Australia and China (our largest trading partner) signal risk-off. These have a combined weighting of 60% in the ASX Bull-Bear Index. The US Bull-Bear Index, also unchanged, makes up the remaining 40%.
The ASX 200 Financials index ($XFJ) threatens to break out above 9320 on the weekly chart, which would signal a new uptrend. The indicator would switch to risk-on, reversing its bear signal from March 7, 2025.
However, China’s NBS manufacturing PMI fell sharply to 49.0 in April. Any further decrease would trigger a recession signal.
Australian private dwelling approvals are also weakening. A reversal of the 3-month MA below the red signal line would also signal risk-off.
Stock Pricing
ASX stock pricing eased slightly, to 79.65 percent, a sizable gain from 67.85 six weeks ago, but well below the high of 85.83 in February 2025.
We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.
Conclusion
The ASX signals a mild bear market, while the risk of a significant drawdown remains high.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
Our Bull/Bear Market indicator remained at 60% this week, with two of five leading indicators signaling risk-off:
30-Week Smoothed Momentum is approaching zero on the S&P 500. A cross to below zero would complete another composite bear signal.
Stock Pricing
Stock pricing eased to 96.05, compared to 95.04 five weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.
We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.
Conclusion
We remain in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing is extreme, with elevated risk of a significant drawdown.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
The bond market reacted to the record tax and spending bill in Congress that extends tax cuts for corporations and the wealthy
The bipartisan Committee for a Responsible Federal Budget estimates the bill would add between $3.3 trillion and $5.2 trillion to the US federal debt, depending on whether policymakers extend temporary provisions
A weak bond auction lifted long-term yields
The dollar fell, while gold climbed above 3300
I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.
~ James Carville, political consultant and lead strategist for Bill Clinton’s successful 1992 presidential campaign.
Weak bond auction
A $16 billion auction of 20-year Treasury bonds on Wednesday attracted less than usual interest, with yields rising to 5.127% after the auction.
“We’ve seen several soft 20-year bond auctions and it has a checkered history as a benchmark issue,” said Thomas Simons, chief U.S. economist at Jefferies in New York. “This one was not one of the best by any stretch of the imagination, but it also wasn’t one of the worst.”
Simons said while the auction was “far from a disaster,” it showed there was not going to be a reversal in the sell-off at the long end of the yield curve anytime soon. (Reuters)
Why is this a problem?
Liz Ann Sonders, Charles Schwab’s chief investment strategist, responded to a question on CNBC: Is 4.58% on the 10-year a problem for the bond market?
It’s not so much the level that matters, it’s the “Why?” If this was driven by the growth trajectory, that would be great. But the fact is it’s driven by uncertainty with regard to inflation, and the Fed’s expected reaction. The wattage on the spotlight aiming at the debt and deficit has been turned up. The investor class cares deeply about this issue but the average voter can’t even conceptualize what 30-plus trillion dollars means and doesn’t tend to vote based on this. This spotlight on the issue is a good thing and will increase the chance that something gets done.
President Trump’s “big, beautiful” tax bill
The House Rules Committee advanced President Trump’s “big, beautiful” tax bill late Wednesday after 21 hours of debate and amendments, sending the legislation to the floor where it is expected to receive a final vote early Thursday morning.
The package includes a major spending increase for immigration enforcement and the military, and it would extend Trump’s 2017 tax cuts, which are scheduled to expire at the end of this year. It includes a series of cuts to Medicaid, food assistance, and clean energy funding to pay for the trillions of dollars in tax cuts and new red ink. (CNBC)
The bipartisan Committee for a Responsible Federal Budget estimates the bill would add between $3.3 trillion and $5.2 trillion to US federal debt by 2034, depending on whether policymakers extend temporary provisions. (Reuters)
Rep. Chip Roy, R-Texas, and House Freedom Caucus chair Andy Harris, R-Md., were among the members who met with Trump at the White House Wednesday afternoon, in a hastily arranged effort to convince fiscal hawks to set aside their objections and back the deficit-exploding package of tax cuts.
Meanwhile, markets tumbled on concerns that Trump’s spending bill would pass, leading to exploding federal deficits and weaker long-term fiscal health. The yield on the 30-year Treasury bond hit 5.09%. (CNBC)
The Dollar & the Dow
The dollar weakened, with the US Dollar Index breaking below 100. Follow-through below 98 would warn of a long-term decline with a target of 90.
The Dow Jones Industrial Average closed below its former primary support level at 42K. A follow-through below 41.5K would close the recent gap, signaling another test of primary support at 37K.
Financial Markets
Recent weakness comes despite a sharp recovery in liquidity, with the Chicago Fed National Financial Conditions Index falling to -0.58.
Bitcoin also reached a new high of 110K, signaling a sharp increase in risk appetite in financial markets.
Gold & Physical Demand
Gold climbed above 3300, headed for a test of the resistance band between 3400 and 3500. A breakout would strengthen our target of 4000 by the end of 2025.
A 700% year-over-year spike in COMEX physical gold deliveries in May 2025 (16,000 contracts, $5.3 billion), the largest in history, reflects unprecedented physical demand from institutions, possibly including the US government or Treasury. Despite the recent correction, gold’s rally to 3300 demonstrates resilience, with physical demand overwhelming paper price suppression. (Andy Schectman)
Conclusion
President Trump’s “big, beautiful tax bill” threatens a bond market revolt, with a steep rise in long-term Treasury yields if passed. The 10-year Treasury yield respected support at 4.5%, warning of a test of resistance at 5.0%.
Rising long-term yields would likely cause a sharp fall in the Dow and S&P 500.
The bipartisan Committee for a Responsible Federal Budget estimates the bill would add between $3.3 trillion and $5.2 trillion to US federal debt by 2034, depending on whether policymakers extend temporary provisions.
The dollar is weakening, and breakout of the US Dollar Index below 98 would confirm a long-term decline with a target of 90.
Gold is rising, and a breakout above 3500 would strengthen our long-term target of 4000 by the end of 2025.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
