Tag: Dow Jones Industrial Average

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Crude Up, Gold Down

Key Points

  • President Trump rejects Iran’s proposal to reopen the Strait and discusses an extended US naval blockade.
  • Brent crude futures (June’26) jump to more than $120 per barrel.
  • The Fed kept interest rates on hold in Jerome Powell’s last FOMC meeting as Fed Chair.
  • Powell says he will stay on as governor for “an undetermined period of time.”

During a Tuesday meeting with oil executives, President Trump rejected Iran’s proposal to reopen the Strait and discussed extending the US naval blockade. (GroundNews)

WASHINGTON, April 29 (Reuters) – U.S. President Donald Trump met with top officials from Chevron (CVX.N) and other energy companies on Tuesday to talk about possible steps to calm oil markets if the blockade of Iranian ports continues for months, a White House official said on Wednesday.

The talks focused on U.S. oil production, oil futures, ​shipping and natural gas, the official said.

“They discussed the steps President Trump has taken to alleviate global oil markets ​and steps we could take to continue the current blockade for months if needed and minimize ⁠impact on American consumers,” the White House official said.

Talk of an extended blockade and a sharp fall in US inventories drove June’26 Brent crude futures to above $120 per barrel.

Brent Crude Futures (ICE June'26)

The EIA report for the week ended April 26 showed an accelerating decline in crude inventories, including the Strategic Petroleum Reserve (SPR).

EIA Crude Inventory (incl. SPR)

The inventory chart above includes the SPR, shown separately below.

EIA Crude Inventory (incl. SPR)

No Change at the Fed

The Fed left its target range for the funds rate unchanged at 3.5%-3.75% for the third consecutive meeting. There were four dissenting votes on the FOMC, with three opposing language that signaled possible future rate cuts, while Trump appointee Stephen Miran called for an immediate reduction. (AP/EuroNews)

Jerome Powell’s term as Chair ends on May 15, with his nominated successor, Kevin Warsh, likely to be sworn in before the next meeting, following approval by the Senate Banking Committee.

Powell indicated that he intends to remain on the Federal Reserve’s governing board for “an undetermined period of time”, citing concerns about what he described as “unprecedented” legal attacks by the Trump administration on the central bank.

Mr Powell said he would wait for the conclusion of an investigation into the Fed’s building renovations before stepping down fully.

“I’m waiting for the investigation to be well and truly over, with finality and transparency,” he said. “I will leave when I think it appropriate to do so.” His term as governor expires in January 2028.

Powell’s decision to stay on forces the resignation of Stephen Miran, a temporary Trump appointee, to make way for the appointment of Warsh as governor. The move denies President Trump the opportunity to nominate a replacement, which would give him greater influence over Fed monetary policy.

Long-term Treasury yields are rising in response to higher oil prices and the improved prospect of an independent Fed. 10-Year yields are expected to test resistance at 4.5%.

10-Year Treasury Yield

We expect the S&P 500 to retrace to test new support at 7000 as a looming global oil shortage overshadows robust quarterly earnings.

S&P 500

The Dow Jones Industrial Average retreated below short-term support at 49K, suggesting another correction.

Dow Jones Industrial Average

Gold found support at $4,500 per ounce, but the rally may be short-lived if oil prices keep rising.

Spot Gold

Conclusion

An early reopening of the Strait of Hormuz is unlikely. We expect a prolonged closure, with shortages driving crude oil prices to between $140 and $150 per barrel by the end of May.

Higher crude prices increase upward pressure on long-term Treasury yields, which would be bearish for stocks.

We also expect Gold to test support at $4,000 per ounce as Gulf states and major oil importers draw on their reserves.

Acknowledgments

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The S&P 500 and the Strait of Hormuz

Key Points

  • Brent crude June ’26 futures are testing resistance at $110 per barrel.
  • The S&P 500 indicates a bull market.
  • However, the S&P 1500 Containers & Packaging Index ($X3BF) threatens a primary downtrend.
  • The bond market is growing restless as the risk of fiscal dominance grows.

Brent crude (June’26) futures are testing resistance at $110 per barrel, having climbed more than 20 percent from $90 per barrel on April 17. Peace talks, or rather talks about peace talks, have reached an impasse, triggering a sharp rise in crude prices as global markets face the prospect of lengthy supply shortages.

Brent Crude Futures (ICE June'26)

Both the US and Iran believe they have the upper hand, and it will take time to force either party to capitulate. The effectiveness of the US blockade of Iranian ports will depend on the US Navy’s ability to interdict the estimated 160 million barrels of crude in tankers outside the Persian Gulf that Iran had built up ahead of the blockade.

Physical shortages have so far been limited to Asian markets, with China absorbing most of the shortfall by drawing on its large reserves, estimated at 1.2-1.3 billion barrels. However, some Asian refiners have been forced to cut production runs due to shortages.

Shortages in Europe have largely been met by increased purchases from the US, which is drawing from its roughly 400 million barrels in strategic petroleum reserves (SPR).

Some rough arithmetic tells us that physical shortages will start to bite at the end of May, three months after the outbreak of the conflict:

  • One month of crude shipments already on the water at the end of February.
  • One month (400 million barrels) of IEA coordinated releases from reserves, excluding China.
  • Another month (400 million barrels) of estimated drawdown from reserves by China before they reenter the market to replenish stockpiles at higher prices.

A resumption of Chinese purchases would drive crude prices towards $200 per barrel.

We expect GDP to contract in line with energy shortages, and a global crude oil shortfall of roughly 12 million barrels per day will likely trigger a global recession.

Further releases from reserves are possible, but they will likely be far smaller and done in conjunction with IEA-coordinated measures to reduce consumption. Lower speed limits and petrol rationing are the obvious starting point. However, diesel shortages will directly affect mining, agriculture, and long-haul transport. Jet fuel prices are also skyrocketing, forcing the aviation industry to raise prices and cut flights.

Secondary impacts from supply chain disruptions due to shortages of helium, sulfur, and fertilizers are expected to pose further challenges for the global economy. Helium is essential in the production of semiconductors. Sulfur is used extensively by the mining industry for refining copper, gold, and silver. Fertilizer shortages will restrict agricultural production, especially in emerging markets.

Conflict in the Persian Gulf has had little impact on the S&P 500 so far, but the Dow Jones Transportation Average plunged more than 13 percent last week.

Dow Jones Transportation Average

The S&P 500 continues to signal a bull market, with a breakout above 7000, driven by strong first-quarter earnings. We expect the index to retrace to test its new support level.

S&P 500

However, the Dow Jones Industrial Average has yet to break resistance at 50K to confirm the S&P 500 bull signal. A reversal below 49K would suggest another correction.

Dow Jones Industrial Average

AI-driven spending is keeping the economy afloat, but the S&P 1500 Containers & Packaging Index ($X3BF) indicates that activity on Main Street is slowing. A fall below primary support at 285 would signal a primary downtrend.

S&P 1500 Containers & Packaging Index

10-Year Treasury yields strengthened to above 4.3%, fueled by rising inflation expectations and widening fiscal deficits.

10-Year Treasury Yield

The budget deficit is inordinately high relative to the low unemployment rate of 4.3% and is expected to rise further as the US government increases defense spending and onshores critical supply chains. Before the 2008 global financial crisis, the deficit as a percentage of GDP was typically kept below the unemployment rate, a sign of prudent fiscal management.

Federal Deficit & Unemployment Rate

However, Congress demonstrates little inclination to rein in spending. The bipartisan Congressional Budget Office (CBO) warns that federal debt held by the public will soon exceed its World War II high relative to GDP.

CBO Projections of Debt Held by the Public as a Percentage of GDP

The likely outcome is fiscal dominance, where the Fed sacrifices its mandate for price stability to support a struggling Treasury market. High inflation and negative real interest rates seem inevitable.

Conclusion

We expect crude oil shortages to start restricting economic activity from the end of May. Further releases from reserves may delay an economic slowdown for a few more months, but the outcome is irreversible. Even a reopening of the Strait of Hormuz after the end of May would take time to offset the supply shortage and would be unlikely to avert a recession.

The S&P 500 signals a bull market, but investors should be cautious about treating this as a buy signal. A bear signal in transportation and containers & packaging would strengthen the bull trap warning.

Rising inflation and ballooning fiscal debt, with negative real interest rates, seem inevitable.

Acknowledgments

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Rising Crude is Bearish for Gold

Key Points

  • Brent crude futures (June’26) rose to $103.68 per barrel.
  • The S&P 500 reached a new high. However, the bull signal has not been confirmed by the Dow and the S&P 1500 Transportation Index.
  • The Fed has injected $170 billion of liquidity into financial markets since December 2025.
  • 10-year Treasury yields found support at 4.25%, while gold is headed for another test of support at $4,500 per ounce.

Brent crude futures (June’26) broke resistance at $100 per barrel and are now testing $104.

Brent Crude Futures (ICE June'26)
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Don’t Chase the Rally

Key Points

  • The S&P 500 index and the Nasdaq QQQ ETF have made new highs at 7126 and 649, respectively, signaling a fresh advance.
  • However, the Strait of Hormuz remains closed.

The S&P 500 broke resistance at 7000, rallying to 7126 on Friday, buoyed by optimism over a resolution to the war with Iran.

S&P 500

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More Noise, No Signal

Key Points

  • Following the breakdown of ceasefire talks, President Trump initiated a naval blockade on Monday to pressure Iran to restore access to the Strait of Hormuz.
  • Central Command reported that nine oil tankers from Iran followed orders to turn around since the blockade began.
  • On Wednesday, Iran’s military threatened to block trade through the Red Sea if the United States continues its naval blockade.
  • The White House says the US remains “engaged” in “productive and ongoing” discussion with Iran.
  • President Trump insists the war is “close to over” and  the stock market is “going to boom.”
  • The S&P 500 makes a new high above 7000.
  • Press Secretary Karoline Leavitt says the US “feels good” about the prospect of a deal, but says no date has been set for further negotiations.
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No Quick Exit

Key Points

  • Brent crude futures (May’26) rose after President Trump paused his threatened attack on Iran’s energy facilities until April 6.
  • The S&P 500 broke primary support at 6550.
  • The Dollar strengthens with the prospect of higher interest rates.
  • Gold tests primary support at $4,400 per ounce.

Brent crude rallied to $109 per barrel on news that negotiations may take longer than initially indicated. Retracement will likely respect support at $105 per barrel, signaling another test of $114.

Brent Crude Futures (ICE May'26)

Markets continue to receive conflicting messages on the war with Iran.

President Trump said he would extend a pause to attack Iran’s energy facilities to April 6, a little over a week after the original deadline that was set to end Friday.

“As per Iranian Government request, please let this statement serve to represent that I am pausing the period of Energy Plant destruction,” Trump said in a Truth Social post. “Talks are ongoing and, despite erroneous statements to the contrary by the Fake News Media, and others, they are going very well. Thank you for your attention to this matter!” (CNBC)

Iran’s Foreign Minister ruled out direct talks with the US but says they are reviewing the US 15-point proposal submitted through Pakistani intermediaries.

House Speaker Mike Johnson said Wednesday that Operation Epic Fury is “almost done” and is “wrapping up.”

….Johnson said that the objectives of the operation “have been met,” but access to the Strait of Hormuz still needs to be “straightened out.” (CBS)

The military buildup continues:

WASHINGTON, March 24 (Reuters) – The Pentagon is expected to send ​thousands of soldiers from the U.S. Army’s elite 82nd Airborne Division to the Middle East, two people familiar with the ‌matter told Reuters on Tuesday, adding to a massive U.S. military buildup even as President Donald Trump talks about a possible deal with Tehran to end the war.

The New York Post:

The Pentagon is reportedly considering a plan to send an additional 10,000 troops to the Middle East amid the war with Iran.

The potential deployment would likely include infantry and armored vehicles and would be on top of the 5,000 Marines and sailors and roughly 2,000 members of the Army’s 82nd Airborne Division who have already been dispatched to the region, according to the Wall Street Journal.

When one party threatens the other, it is normally a sign that the negotiation is not going well:

President Trump is ready to “unleash hell” on Iran if Tehran does not accept a deal to end the war in the Middle East, the White House warned on Wednesday.

“If Iran fails to accept the reality of the current moment, if they fail to understand that they have been defeated militarily and will continue to be, President Trump will ensure they are hit harder than they have ever been hit before,” Press Secretary Karoline Leavitt said in a briefing.

“President Trump does not bluff and he is prepared to unleash hell.” (CBS)

Iran and Israel seem to have longer-term objectives, but President Trump is desperate for an off-ramp. Opinion polls show the war is unpopular in the US:

Reuters/Ipsos Opinion Poll

The Iranians know that the closer it gets to the US midterms in November, the greater their leverage.

Trump has few good options: escalate the conflict or settle on a potentially bad deal with a weakened yet defiant Iran that has choked off much of the world’s oil supply….

A clear and quick victory could pay dividends for Trump politically. But a settlement that credibly contains Iran appears to be far off….

The terms required to wind the war down may involve concessions to Tehran that do not satisfy Israel, which appears to want to press ahead. (Reuters)

Copper continues its downtrend, warning that the global economy is slowing.

Copper

Mega-cap technology stocks are dragging the major indices lower. The Roundhill Magnificent 7 ETF (MAGS) signals a strong bear trend after breaking primary support at 63 in early February.

Roundhill Magnificent 7 ETF (MAGS)

The S&P 500 has now followed with a breach of primary support at 6550, confirmed by the recent dead cat bounce.

S&P 500

The Dow Jones Industrial Average is testing the primary support band between 45,500 and 46,000. A breach would confirm the S&P 500 bear market signal.

Dow Jones Industrial Average

The S&P 500 Equal-Weighted Index ($IQX) shows that large caps are now outperforming mega caps, which had led the market for several years. It’s all relative, however. Declining Trend Index peaks below zero warn of selling pressure.

S&P 500 Equal-Weighted Index

Bitcoin1 continues to test the support band between 64,000 and 70,000, indicating that financial markets have become risk-averse.

Bitcoin (BTC)

10-year Treasury yields respected support at 4.3%, offering a short-term target of 4.65% as the prospect of further rate cuts fades.

10-Year Treasury Yield

The US Dollar Index is testing resistance at 100, driven by the prospect of higher interest rates.

Dollar Index

Gold is testing primary support at $4,400 per ounce. Respect, indicated by recovery above $4,600, would indicate another test of $5,000, while a breach would offer a target of $4,000.

Spot Gold

Conclusion

Mixed messaging over negotiations with Iran indicates that progress is slow. Conflicting objectives between the US and Israel may also prevent a quick resolution to the war against Iran. A quick exit is unlikely.

A downtrend in copper prices warns that the global economy is slowing.

The S&P 500 broke support at 6550, signaling a primary downtrend. A Dow Jones Industrial Average breach of primary support at 45,500 would confirm a bear market.

The prospect of higher interest rates, with the market pricing out further rate cuts, has strengthened the Dollar, triggering a selloff in gold. A breach of primary support at $4,400 per ounce would offer a target of $4,000, while respect of support would signal another test of $5,000.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
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S&P 500 Bear Market Warning

Key Points

  • Brent crude futures (May’26) rose to $112 per barrel.
  • 10-year Treasury yields jumped to 4.39%.
  • The S&P 500 broke primary support at 6550.

The war in Iran is in danger of escalating, sending the global economy into recession.

WASHINGTON, March 18 (Reuters) – President Donald Trump’s administration is considering deploying thousands of U.S. troops to reinforce its operation in the Middle East, as the U.S. military prepares for possible next steps in its campaign against ​Iran, said a U.S. official and three people familiar with the matter.

The deployments could help provide Trump with additional options as he weighs expanding U.S. operations, with the Iran war well into ‌its third week.

Those options include securing safe passage for oil tankers through the Strait of Hormuz, a mission that would be accomplished primarily through air and naval forces, the sources said. But securing the Strait could also mean deploying U.S. troops to Iran’s shoreline, said four sources, including two U.S. officials.

Reuters granted the sources anonymity to speak about military planning.

The Trump administration has also discussed options to send ground forces to Iran’s Kharg Island, the hub for 90% of Iran’s oil exports, the three people familiar with the matter and three U.S. ​officials said. One of the officials said such an operation would be very risky. Iran has the ability to reach the island with missiles and drones.

News of preparations for a ground war spooked financial markets.

CBS News said “heavy preparations” were being made for sending ground troops to Iran, citing multiple sources….

“If this is an escalation involving troops on the ground, then we’re probably in for at least a couple more weeks of this sort of market of higher oil prices, high gas prices; you’re hanging on every headline about energy infrastructure in the region,” Baird investment strategist Ross Mayfield said to CNBC. “Quite frankly, equity markets haven’t sold off in a way that would reflect this sort of event yet, so there could still be some some downside ahead.” (CNBC)

Brent crude futures (ICE May’26) climbed above $112 per barrel by the close of the week.

Brent Crude

Ten-year Treasury yields spiked up 4.39%. The breakout above the 4.3% resistance level indicates another test of the 2023 high at 5.0%.

10-Year Treasury Yield

The S&P 500 broke primary support at 6550, warning of a bear market.

S&P 500

The Dow Jones Industrial Average is testing primary support at 45,500. A breach of the support level would confirm the S&P 500 bear market signal.

Dow Jones Industrial Average

The Roundhill Magnificent 7 ETF (MAGS) has already broken support at 60, confirming a primary downtrend in the seven mega-cap technology stocks that led the bull market advance.

Roundhill Magnificent 7 ETF (MAGS)

The Chicago Fed National Financial Conditions Index jumped to -0.486, the uptick above its preceding peak warning of a contraction in financial market liquidity.

Chicago Fed National Financial Conditions Index

The downtrend in Bitcoin1 has warned of a financial market contraction since late last year.

Bitcoin (BTC)

Conclusion

Prepare for a bear market. The Dow will likely break support at 45,500 next week, confirming the S&P 500 bear signal.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
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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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Weak jobs and falling crude = September rate cut

Key Points

  • The Fed will likely cut interest rates in September after a weak jobs report.
  • Falling crude oil prices also ease inflationary pressure.
  • Long-term Treasury yields fall, anticipating a rate cut.
  • The dollar weakened as yields softened, while gold soared to a new high of $3,600 per ounce.

The August labor report disappointed with a low 22,000 job growth compared to an expected 75,000. Another June data revision saw jobs contract by 13,000, after initial reported gains of 147,000 were revised down to 14,000 last month.

Employment Growth

Growth in total weekly hours worked came to a complete halt in August, with annual growth falling to 0.7%. Real GDP growth will likely follow.

Total Hours Worked

The uptrend in continued claims confirms the August rise in the unemployment rate to 4.3%.

Unemployment

The unemployment level ( 7.4m ) now exceeds job openings ( 7.2m ), but only by 200K.

Job Openings

Temporary jobs fell to 2.5 million, a level typically seen during recessions.

Temporary Employment

Layoffs and discharges are in an uptrend.

Layoffs & Discharges Rate

The 2.0% quit rate indicates that employees are no longer confident in finding new jobs.

Quit Rate

Average hourly earnings growth slowed to an annualized rate of 3.3% in August, but year/year growth was steady at 3.9%, still indicating a balanced labor market.

Average Hourly Earnings

Crude Oil

OPEC+ has injected a lot of downside pricing risk into the oil markets this week, fueling speculation that the second wave of voluntary cuts totaling 1.65 million b/d could be unwound much quicker than previously expected. According to news reports, Saudi Arabia is interested in pushing ahead with the unwinding during the September 7 meeting, citing the need to regain market share. (OilPrice.com)

The move has the potential to create a massive oversupply. Brent crude fell to $65.50 per barrel on Friday, but if the Saudis succeed, expect a test of support at $60. Falling crude prices would squeeze shale producer margins, causing a drop in US production.

Brent Crude

Lower energy prices would ease inflationary pressures in the US, allowing more room for Fed rate cuts.

ISM Services

The ISM services PMI improved to 52% in August, indicating expansion.

ISM Services PMI

New orders jumped to 56%, signaling an improving outlook.

ISM Services New Orders

However, services employment signals contraction, confirming the weak labor report.

ISM Services Employment

A steep 69.2% for the prices sub-index also warns of strong inflationary pressures.

ISM Services Prices

Contracting employment and rising prices in the large services sector warn of stagflation. We expect the Fed to cut in September, but then pause to see how this affects prices.

Stocks

A weak labor report is a bearish sign for stocks despite the prospect of a Fed rate cut. A reversal of the S&P 500 below support at 6400 would warn of a correction.

S&P 500

We expect the Dow Jones Industrial Average to test support at 45,000. Respect of support would confirm another advance. A breach is less likely, but would signal a test of 44,000.

Dow Jones Industrial Average

Financial Markets

The Chicago Fed Index retreated to -0.526, warning that financial conditions are tightening.

Chicago Fed National Financial Conditions Index

Tighter financial conditions are also highlighted by a decline in bank reserves to below $3.2 trillion.

Commercial Bank Reserves at the Fed

Bitcoin is testing support at 110K. A breach would warn of a swing to risk-off in financial markets, which would be bearish for stocks.

Bitcoin (BTC)

Treasury Markets

10-year Treasury yields plunged to 4.09%, heading for a test of long-term support at 4.0% as speculators pile into bonds ahead of the expected September rate cut. However, we have warned of the risk that long-term yields rise in response to a Fed cut — as in September last year.

10-Year Treasury Yield

Dollar & Gold

The dollar weakened in response to the poor jobs report, anticipating falling interest rates.

Dollar Index

Gold surged to a new high at $3,600 per ounce before closing at $3,587. Expect another test of support at $3,500, but respect will likely confirm another advance — and our year-end target of $4,000.

Spot Gold

Silver is retracing to test support at $40, but respect will likely confirm another advance and a target of $44.

Spot Silver

Conclusion

Weak jobs growth in August warns that economic growth is slowing, but the ISM services report warns of strong price pressures in the services sector. We expect a Fed rate cut in September but then a pause as the Fed remains wary of stagflation, with low growth and rising prices.

We expect the dollar to weaken in response to rate cuts, with gold and silver soaring to new highs.

The Fed should take care to avoid a repeat of last September, when Fed rate cuts sparked a sell-off in long-term Treasuries, signaling the bond market’s displeasure with monetary and fiscal policy. We believe they will aim for a gradual decline, with a pause after the September cut to assess the impact of tariffs and a slowing economy on prices.

A Saudi move to increase crude oil production would likely drive Brent crude to $60 per barrel or below, giving the Fed more room to cut rates.

Acknowledgments

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Gold breaks to a new high

Key Points

  • Gold broke through resistance at $3,500 per ounce, reaching a new high of $3,546.
  • Silver is testing resistance at $41 per ounce.
  • Sovereign debt is losing favor, with the UK 30-year gilt yield above 5.7% for the first time in 27 years.

After its recent breakout, the Dow Jones Industrial Average has retraced to test support at 45K. Respect is likely, but a breach would raise questions about the validity of the Dow’s recent bull market signal.

Dow Jones Industrial Average

September is also the worst month of the year for stock performance, most likely due to investment managers cleaning up their portfolios before the financial year-end.

Stock Market Performance by Calendar Month

While September has the worst average return, we are also wary of October, which has delivered some of the most severe crashes in memory, including October 1929 and 1987.

Financial Markets

Bitcoin is testing support at 110K, warning that investors’ risk appetite is shrinking. A follow-through below the recent low would be a strong bear signal for stocks.

Bitcoin (BTC)

Treasury Markets

10-year Treasury yields are consolidating in a narrow band above support at 4.2%, anticipating a Fed rate cut in September, causing a decline in long-term yields.

10-Year Treasury Yield

However, long-term yields are in a secular uptrend, with the US 30-year testing resistance at 5.0%.

30-Year US Treasury Yield

Global investors are increasingly shunning long-term sovereign debt. The UK 30-year Gilt rose above 5.70% for the first time since April 1998.

30-Year UK Gilt Yield

Japan’s 30-year JGB yields are climbing steeply due to the Bank of Japan tightening monetary policy.

30-Year JGB Yield

The 30-year German Bund is on a similar path.

30-Year German Bund Yield

A secular bear market in bonds will also likely be bearish for stocks.

Dollar & Gold

The US Dollar Index continues in a bearish narrow consolidation above support at 97. Trend Index peaks below zero warn of long-term selling pressure, and a breach of support at 97 would strengthen our long-term target of 90.

Dollar Index

Gold broke through resistance at $3,500 per ounce, reaching a new high of $3,546. A higher Trend Index trough signals buying pressure. Expect retracement to test the band of support between $3,400 and $3,500, but respect will likely confirm another advance, further strengthening our target of $4,000 by the end of the year.

Spot Gold

Silver made a similar breakout above $40 per ounce. Again, we expect retracement to test the new band of support between $39 and $40, but respect will likely confirm another advance. Our year-end target is $44.

Spot Silver

ISM Manufacturing

The manufacturing sector continues to signal a contraction, but the rate of decline slowed, with the ISM Manufacturing PMI rising to 48.7%.

ISM Manufacturing PMI

The outlook improved, with forward orders rising to 51.4%.

ISM Manufacturing New Orders

However, employment prospects remain low, with the employment sub-index at 43.8%.

ISM Manufacturing Employment

Input prices are still rising, but the prices sub-index surprisingly improved to 63.7%. A similar improvement in Services next week would indicate that inflationary pressures are easing, increasing the likelihood of a Fed rate cut.

ISM Manufacturing Prices

Conclusion

Long-term government bonds are in a secular bear market, which will likely be bearish for stocks.

Gold reached a new high above resistance at $3,500 per ounce, reflecting investor caution towards sovereign debt. A retracement that respects the latest support level would confirm our year-end target of $4,000.

Acknowledgments

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