Key Points
- Brent Crude futures climbed to $114.55 per barrel as conflict in the Persian Gulf intensifies.
- 10-year Treasury yields fell sharply to below 5.0%.
- Mega-cap stocks were sold, but the broad-based S&P 500 equal-weighted index rallied on the prospect of lower funding costs.
- Gold, copper and other energy metals are experiencing a broad sell-off despite falling long-term rates.
Brent Crude futures (Dec ’26) have climbed to $114.55/barrel, headed for another test of resistance from the March and April highs at $118/barrel.
Average US diesel prices are above $6.00 per gallon.
Jim Bianco argues that we are already at the equivalent of $200/barrel crude. Diesel crack spreads are as high as $86.90 per barrel, up from $33/barrel in February, but refiners must cover shipping costs of $35 to $38/barrel versus $1 to $ 2 per barrel before the war.
He says that consumers currently “bitch and moan” when they fill up the truck, but they still drive. Demand destruction is when they park the truck and walk.
Bond Market
10-Year Treasury yields fell below 5.0%, finding short-term support at 4.95%. The sharp fall signals increased investor demand for bonds—a bearish sign for stocks.
Yields on investment-grade and high-yield bonds are rapidly diverging.
The spread between the lowest investment-grade (Baa) and 10-year Treasuries has narrowed to 1.44%, near the 30-year low of 1.38% in November 2024. By contrast, the spread between high-yield bonds (CCC and lower) and 10-year Treasuries has widened to 12.57% from 9.89% at the end of August.
From Grant’s Daily:
“The U.S. leveraged finance market is showing classic late-cycle characteristics,” analysts at Moody’s warned late last month. “As financing conditions have grown more selective, the gap between stronger and weaker borrowers has widened.”
A lasting downshift in market sentiment could prove costly to firms sitting on the lower rungs of the speculative-grade ladder. Firms rated Caa and below face $27 billion in debt maturities over the next year and $91 billion by fall 2028, the rating agency warned Tuesday.
Stocks
The Philadelphia Semiconductor Index (SOX) broke support at 11,000. Another bearish sign for stocks.
The S&P 500 is testing support at 7600. A lower Trend Index peak warns of secondary selling pressure. A breach of 7500 would warn of a correction to test 7000.
Mega-cap technology stocks are under selling pressure, with the Roundhill Magnificent 7 ETF1 (MAGS) testing support at 70.
However, the broader-based S&P 500 equal-weighted index ($IQX) rallied on the prospect of lower interest rates.
A big week for US corporate earnings will be headlined by reports from three of the largest companies at the heart of the huge AI capital investment theme that has driven up equities.
Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN) — three of the so-called hyperscalers — will post results at a time investors are becoming wary of the risks of the spending on data centers.
The week will be critical in determining whether third-quarter results lived up to high expectations for US profit growth, with about one-third of S&P 500 companies reporting.
Dollar & Gold
The Dollar weakened as expectations of interest rate rises softened.
Gold is testing primary support at $4,000 per ounce, driven by rising oil prices ahead of falling long-term rates.
Energy Metals
Mining stocks for energy-related metals are under selling pressure.
Sprott Copper Miners ETF1 (COPP) is headed for a test of primary support between 35 and 32. Declining Trend Index peaks confirm selling pressure.
Sprott Lithium Miners ETF1 (LITP) is in a steep downtrend. Declining Trend Index peaks, below zero, signal strong selling pressure.
Sprott Critical Materials ETF1 (SETM) has broken primary support at 30, with declining Trend Index peaks signaling strong selling pressure.
Sprott Uranium Miners ETF1 (URNM) is also in a steep downtrend, with Trend Index peaks below zero indicating strong selling pressure.
Conclusion
The outlook for stocks is bearish. Falling 10-year Treasury yields are a bear signal.
Oil prices are rising, and stocks are falling as investors shift towards the security of bonds. Widening spreads for high-yield bonds warn of growing stress among low-grade corporate borrowers. Falling commodity prices warn that manufacturing demand will likely slow as a result of high energy prices.
Gold is testing primary support at $4,000 per ounce, pressured by rising oil prices and the conflict in the Persian Gulf. However, we remain long-term gold bulls and view the current weakness as an opportunity to accumulate.
Acknowledgments
- Federal Reserve of St. Louis: FRED Data
- CNBC: Brent Crude ICE Dec’26 Futures
- Jim Bianco: Expect Huge Moves In INTEREST RATES…Here’s Why
- Reuters: AI trade meets the Fed
Notes
- 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.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
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.
