Category: US & Canada

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Crude Oil Spikes on US-Iran Tensions

Key Points

  • Brent crude closed above $70 per barrel.
  • US naval buildup off the coast of Iran continues, with a second aircraft carrier group ordered to the region.
  • Iran partially closed the Strait of Hormuz for naval drills and announced additional joint exercises with Russia in the Sea of Oman.

Brent crude rallied to above $70 per barrel as prospects of a US attack on Iran increase.

Brent Crude

The Dow Jones Global Oil & Gas Index commenced a strong uptrend in January amid escalating US-Iran tensions. Rising Trend Index troughs signal growing buying pressure. A breakout above 560 would signal another advance.

Dow Jones Global Oil & Gas Index

WASHINGTON, Feb 18 (Reuters) – Iran is expected to submit a written proposal on how to resolve its standoff with the United States in the wake of U.S.-Iran talks in Geneva on Tuesday, a senior U.S. official told Reuters on Wednesday.

Top U.S. national security advisers met in the White House Situation Room on Wednesday to discuss Iran and were told all U.S. military forces deployed to the region should be in place by mid-March, the official said….

The U.S. has sought to expand the scope of talks to non-nuclear issues such as Iran’s missile stockpile. Iran says it is willing only to discuss curbs on its nuclear program, in exchange for sanctions relief, and that it will not give up uranium enrichment completely or discuss its missile program.

From Axios:

Some U.S. sources tell Axios that the U.S. might need more time. Sen. Lindsey Graham (R-S.C.) said strikes could still be weeks away. But others say the timeline could be shorter.

“The boss is getting fed up. Some people around him warn him against going to war with Iran, but I think there is 90% chance we see kinetic action in the next few weeks,” one Trump adviser said.

There’s no evidence a diplomatic breakthrough with Iran is on the horizon. But there’s more and more evidence that a war is imminent.

Iran’s trump card is the Strait of Hormuz:

Iran’s naval forces of the Islamic Revolutionary Guard Corps (IRGC) on Monday launched a military drill, dubbed “Smart Control of the Strait of Hormuz,” on the eve of the next round of indirect U.S.-Iran nuclear talks in Geneva.

“Drones deployed during the naval exercise of the Islamic Revolution Guard Corps (IRGC) in the Strait of Hormuz—capable of striking both aerial and maritime targets—are among the force’s newest strategic assets, officials said,” Fars reported on Tuesday.

The Strait of Hormuz is the world’s most critical oil transit chokepoint, and the oil market has time and again feared Iran could attempt to close the lane….

The narrow lane between Iran and Oman is the key export route of all major oil producers in the Gulf, and very few alternatives exist to move oil out of the strait if it is closed. (Oilprice.com)

From Al Jazeera:

Even as diplomacy resumed, the US continues to build up its military presence near Iran. Trump has ordered a second aircraft carrier to the region, with the first, the USS Abraham Lincoln and its nearly 80 aircraft, positioned about 700 kilometres (435 miles) from the Iranian coast as of Sunday, according to satellite imagery…..

Barbara Slavin, a distinguished Fellow at the Stimson Center, said she expected further attacks on Iran by the US and Israel, possibly in the near term….

“Frankly, I do not see a basis for an agreement yet,” she added. “It doesn’t look as though these talks were very extensive. They lasted only a couple of hours … And we do have this massive buildup. So I’m very concerned.”

Conclusion

Neither the US nor Iran is likely to back down, and the prospects of them reaching a compromise seem remote.

A complete closure of the Strait of Hormuz is unlikely, but the threat to oil shipments in the event of conflict would likely cause a spike in crude oil prices.
And a corresponding rise in oil and gas stocks.

Acknowledgments

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US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

Employment in cyclical sectors — manufacturing, construction, transportation, and warehousing — increased slightly in January, but is still down 225,000 from its September 2024 peak. A decline of 300,000 would warn that the economy is headed for a recession, signaling risk-off.

Cyclical Sector Employment

Stock Pricing

Stock pricing declined to 97.91 percent from 98.11 percent last week, compared with the October high of 98.66 percent and the April low of 95.04 percent. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

More Jobs, No Rate Cuts

Key Points

  • The economy added 130,000 jobs in January.
  • The strong BLS labor report means that further rate cuts are unlikely in the first half of 2026.

The economy added 130,000 jobs in January 2026, according to the BLS labor report. The result far exceeded average expectations of 70,000 from economists polled by Reuters and was greeted with a fair degree of skepticism.

Employment Growth

Job growth was patchy, with increases concentrated in the Private Education and Health Services sector, which added 137,000 jobs.

Employment Growth: Private Education and Health Services

The unemployment rate fell to 4.3% in January, although the Household Survey had a below-average response rate of 64.3% due to adverse weather conditions.

Unemployment

Aggregate weekly hours worked grew by a modest 1.0% for the 12 months to January, indicating a weak economy.

Real GDP & Growth in Total Hours Worked

Employment in cyclical sectors increased by 27,000 jobs in January, primarily due to nonresidential construction of AI data centers.

Employment in Cyclical Sectors: Manufacturing, Construction, and Transport & Warehousing

Average hourly earnings grew by 0.4% in January, an annualized rate of 4.8%. The 6-month average is 3.8% annualized.

Average Hourly Earnings - Monthly

Stocks

The S&P 500 retreated from resistance at 7000 as the prospect of another rate cut in the first half of 2026 is now considered unlikely.

S&P 500

The Dow Jones Industrial Average continues to test its new support level at 50,000.

Dow Jones Industrial Average

Conclusion

We are wary of monthly job numbers because of frequent revisions and political interference. President Trump dismissed BLS Commissioner Dr. Erika McEntarfer, nominated by former President Joe Biden, alleging that she fabricated poor numbers for political reasons.

Nevertheless, January’s strong jobs report should provide the Fed with sufficient cover to hold off further rate cuts until the second half of 2026. Average hourly earnings growth remains close to 4.0%, indicating underlying inflationary pressures.

Acknowledgments

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Organized Crime

Jim Grant’s observation on the Commodity Futures Trading Commission:

A less-than-suffocating financial oversight regime is looking looser by the day, as a Monday Barron’s report details the evisceration of Chicago’s enforcement division at the CFTC: “In recent months, the office has become a ghost town,” with a 20-strong team of enforcement attorneys pared to just one. That aggressive downsizing is particularly striking in light of the office’s prominent role in major CFTC enforcement actions since its 1975 establishment, including recent civil charges against Binance CEO Changpeng Zhao and now-jailed FTX boss Sam Bankman-Fried.

“Chicago is the spiritual home of the futures markets; it’s where it all began,” former CFTC staffer David Slovick lamented to Barron’s. “To wipe out the enforcement staff. . . sends a very bad signal to market participants about whether the government is watching what they’re doing and whether or not they have to abide by the law.”

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US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed rose to -0.557, and the previous week was revised upwards to -0.56 from -0.60. Easy financial conditions persist; however, Bitcoin’s fall below $70,000 suggests that financial markets are becoming risk-averse.

Chicago Fed National Financial Conditions Index

The decline in heavy truck sales continues, with the 12-month moving average falling to 34,500 units. This is the seventh month in which sales are more than 10% below their September 2023 peak, signaling risk-off.

Heavy Truck Sales

Stock Pricing

Stock pricing decreased to 98.11 percent from 98.19 percent last week, compared with the October high of 98.66 percent and the April low of 95.04 percent. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The S&P 500 price-to-sales ratio is at a record high of 3.31, almost 83% above the long-term average of 1.81.

S&P 500 Price-to-Sales Ratio

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

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Bitcoin Plunge Signals Risk-Off

Key Points

  • Bitcoin plunged to $71,200, warning that financial markets are becoming risk-averse.
  • Brent crude surged to nearly $70 per barrel amid heightened US-Iran tensions.
  • Volatility following the CME margin hike, effective Monday, triggered a broad selloff in precious metals and energy transition metals.

Bitcoin2 (BTC) broke support at 85,000, the steep decline warning that financial markets are shedding risk assets.

Bitcoin (BTC)

The S&P 500 index retreated below 6900, but long tails and a rising Trend Index indicate strong buying interest.

S&P 500

However, the Roundhill Magnificent 7 ETF (MAGS) is headed for a test of primary support at 63, while Trend Index peaks at zero warn of selling pressure. A breach of support would be a strong bear signal.

Roundhill Magnificent 7 ETF (MAGS)

10-year Treasury yields are testing resistance at 4.3%. A breakout would offer a short-term target of 4.4%.

10-Year Treasury Yield

Dollar & Gold

The US Dollar Index is testing resistance at 98, but remains in a long-term downtrend. Respect of resistance will likely signal another decline.

Dollar Index

Gold is testing resistance at $5,000 per ounce after Friday’s sharp fall.

Spot Gold

The primary reason for the sharp fall in copper and precious metals was not Trump’s nomination of Kevin Warsh as the next Fed Chair. On January 29, the CME announced that it was again increasing margin requirements on futures contracts, effective Monday, February 2.

Comex Margin Increase

Comex Margins

The increase in CME margin requirements is intended to discourage leveraged speculation in key contracts that show signs of overheating.

Silver had a higher speculative interest, making it more susceptible to the margin hike, with the metal testing support at $70 per ounce.

Spot Silver

Energy & Energy Transition Metals

Brent crude is testing resistance at $70 per barrel on heightened US-Iran tensions.

Brent Crude

The Dow Jones Global Oil & Gas index is in a strong uptrend, with rising Trend Index troughs reflecting buying pressure.

Dow Jones Global Oil & Gas Index

Copper

The margin hike had less effect on copper, which retreated to $13,000 per tonne from its recent peak of $13,500 per tonne.

Copper

Copper miners were more susceptible to the risk-off shift in financial markets, with Sprott Copper Miners ETF1 (COPP) testing support at 40.

Sprott Copper Miners ETF (COPP)

Uranium

Uranium was not directly affected by the CME margin hike but was caught up in the broader selloff, with the Sprott Uranium Miners ETF1 (URNM) testing support at 70.

Sprott Uranium Miners ETF (URNM)

Lithium

Lithium suffered a similar fate, with Sprott Lithium Miners ETF1 (LITP) breaking support at 14.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Critical materials experienced a similar selloff, with Sprott Critical Materials ETF1 (SETM) testing support at 34.

Sprott Critical Materials ETF (SETM)

Conclusion

The CME margin hike, which took effect on Monday, was intended to cause a correction in copper and precious metals. However, the selloff spread to uranium, lithium, and critical materials. Risk aversion also spread to financial markets, as evidenced by a steep fall in risk assets such as Bitcoin.

Mega-cap technology stocks have experienced a selloff, with the Roundhill Magnificent 7 ETF (MAGS) approaching its primary support level. A breach of support would be a strong bear signal for the broader S&P 500 index, with market leaders falling behind their second-tier counterparts.

We can expect further CME margin hikes as the exchange seeks to curb speculative excesses. Volatility will likely discourage speculation but have minimal impact on the secular rise in demand for gold, copper, uranium, lithium, and critical materials.

Acknowledgments

Notes

  1. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
  2. We analyze Bitcoin (BTC) — the most volatile risk asset — to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell, for which we are ill-equipped to express an opinion, nor is it a commentary on the merits of the cryptocurrency.
Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed eased to -0.60, indicating loose financial conditions similar to 2021. However, Bitcoin’s fall below $85,000 suggests that financial markets are becoming increasingly risk-averse.

Chicago Fed National Financial Conditions Index

Continued unemployment claims slumped to 1.827 million, confirming the recent fall in the unemployment rate to 4.4%. Both measures are below the typical threshold for a recession.

Continued Unemployment Claims

Stock Pricing

Stock pricing increased to 98.19 percent from 98.15 percent last week, close to the October high of 98.66, compared with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed eased to -0.59, indicating loose financial conditions similar to 2021, but Bitcoin’s fall below $90,000 warns that investors are shifting to risk-off.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased to 98.15 percent from 98.20 percent last week, but remains close to the October high of 98.66, compared with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Warren Buffett’s favorite measure of stock market valuations is stock market capitalization to GDP. The current record high of 3.08 is at a considerable premium to the Dotcom bubble peak at 1.89 and the 50-year average of 1.20.

Stock Market Capitalization/GDP

Robert Shiller’s CAPE ratio compares the current S&P 500 index to the preceding 10 years of inflation-adjusted earnings. The current value of 40.09 is only the second time in more than a century that the ratio has crossed above 40. The first time was during the Dotcom bubble in 1999-2000. The average over the past 50 years is 22.3.

S&P 500 CAPE

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

Trump Backs Down

Key Points

  • President Trump backed off his threats to seize Greenland and said he will not impose additional tariffs on EU members.
  • Stocks rallied, but the mega-cap Magnificent 7 remain under pressure.
  • Gold and silver retraced to test new support levels.

From Reuters:

On a whirlwind trip to the World Economic Forum annual meeting in Davos, Switzerland, Trump backed down from weeks of rhetoric that shook the NATO alliance and risked a new global trade war.

Instead, Trump said, Western Arctic allies could forge a new deal that satisfies his desire for a “Golden Dome” missile‑defense system and access to critical minerals while blocking Russia and China’s ambitions in the Arctic. “It’s a deal that everybody’s very happy with,” Trump told reporters after emerging from a meeting with NATO Secretary General Mark Rutte. “It’s a long-term deal. It’s the ultimate long-term deal. It puts everybody in a really good position, especially as it pertains to security and to minerals.”
He added: “It’s a deal that’s forever.”

A NATO spokesperson said seven NATO allies in the Arctic would work together to ensure their collective security.
“Negotiations between Denmark, Greenland, and the United States will go forward aimed at ensuring that Russia and China never gain a foothold – economically or militarily – in Greenland,” the spokesperson said.

Trump said on his Truth Social platform that the US and NATO had “formed the framework of a future deal with respect to Greenland and, in fact, the entire Arctic Region,” and that “based upon this understanding, I will not be imposing the Tariffs that were scheduled to go into effect on February 1st.”

…Earlier in the day, the Republican US president acknowledged financial markets’ discomfort with his threats and ruled out force in a speech at the Swiss Alpine resort.
“People thought I would use force, but I don’t have to use force,” Trump said. “I don’t want to use force. I won’t use force.”

The S&P 500 rallied to test the former resistance level of 6900, but declining Trend Index peaks continue to indicate selling pressure.

S&P 500

The Nasdaq QQQ ETF displays similar selling pressure.

Invesco Nasdaq 100 ETF (QQQ)

Selling pressure on mega-cap technology stocks is more severe, with the Roundhill Magnificent 7 ETF (MAGS) testing primary support at 63, and the latest Trend Index peak at zero.

Roundhill Magnificent 7 ETF (MAGS)

Mega-caps are falling faster than small-cap stocks, with MAGS in a steep downtrend relative to the Russell 2000 Small Caps ETF (IWM).

Roundhill Magnificent 7 ETF (MAGS) relative to iShares Russell 2000 Small Caps ETF (IWM)

The post-Liberation Day regime has been particularly lucrative for the corporate halt and lame. As Apollo chief economist Torsten Slök pointed out yesterday, Russell 2000 members generating negative earnings per share have returned nearly 50% on average since the close of trading last April 2, some 20 percentage points better than the components operating in the black. Over the same period, a Goldman Sachs-compiled basket of the most heavily shorted stocks has generated a 61% return, leaving the S&P 500’s 21% figure in the dust. (Grant’s Daily)

US stocks are also underperforming their global peers, with the Dow Jones US Index ($DJUS) falling relative to the Dow Jones World Index excluding the US (W2DOW).

DJ US Index ($DJUS) & DJ World ex-US ($W2DOW)

Financial Markets

Bitcoin broke support at 90,000 but is now retracing to test the new resistance level. Recovery above 90,000 would indicate that tight liquidity is easing.

Bitcoin (BTC)

10-Year Treasury yields eased to 4.243%, headed for a test of new support at 4.20%.

10-Year Treasury Yield

Dollar & Gold

The Dollar rallied after a sharp fall on Tuesday, but still displays long-term weakness.
Dollar Index

Gold is retracing after testing $4,900 per ounce on Tuesday. We expect retracement to test new support at $4,600.

Spot Gold

Silver is similarly retracing to test support, and a breach of $90 will likely indicate a correction to $80 per ounce.

Spot Silver

Conclusion

Gold and silver continue in strong uptrends. Demand is driven by concerns about geopolitical risk and fiscal stability, amid large deficits and precarious sovereign debt levels across many developed economies.

A reader asked if there are signs that a blow-off top is forming in gold and silver, but regular corrections to test new support levels ease pent-up demand and limit the risk of a blow-off.

Stocks rallied on news of easing tensions over Greenland, but mega-cap technology stocks lag. This signals the final stage of a bull market, when market leaders no longer lead the rallies and investors chase riskier small caps.

Acknowledgments

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed eased to -0.573, indicating loose financial conditions similar to 2021.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased to 98.20 percent from 98.34 percent last week, but is still close to the October high of 98.66, with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The S&P 500 Forward Price-to-Sales ratio increased to a record high of 3.34 compared to its long-term average of 1.81.

S&P 500 Price-to-Sales Ratio

Operating margins reached a new high of 13.55% in the September quarter, but will likely shrink when financial conditions tighten.

S&P 500 Operating Margins

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

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