The Classic Harbinger Of A Recession

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In his Daily Market Notes report to investors, while commenting on recession, Louis Navellier wrote:

Goodbye and good riddance to the 1st half of ’22, as the focus shifts from inflation to growth.

Harbinger of Recession

Stocks were modestly in the green on the open after a tough week, but have since headed firmly into the red.  The big concern today is how much interest rates have dropped, reflecting a fear of recession.

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The US 10-year Treasury is 2.79% today, dropping 18bps since yesterday and 46bps since last Friday.  The 2-year yield is 2.73%, well below where current forecasts are for overnight Fed Funds by year-end, essentially giving us an inverted yield curve, the classic harbinger of a recession. 

Copper, another economic indicator, is down 3.8% today, down over 20% in a month, and now at a 2-year low. Natural gas tumbled over 15% yesterday on an extended closure of a major LNG plant, and is now down 40% in a month.

Today, the ISM Manufacturing Index came in at 53.0 vs the estimate of 54.9 and last month's 56.1. US construction spending for May posted -0.1% vs the forecast of 0.4% and April's 0.8%. Semiconductors, another broad indicator of demand, is down 5% on the week, with 4 negative weeks in 5 and having the worst month & quarter since 2008.

No End in Sight

Today, Micron (NASDAQ:MU) warned on soft demand and down 5.2% to a new 52-week low as are NVIDIA (NASDAQ:NVDA), Lam Research (NASDAQ:LRCX), and Advanced Micro (NASDAQ:AMD). The supply chain disruption in semis has caused many problems, especially in auto manufacturing, and it's been surprising how long it's lasted and still has no end in sight.

Growth concerns are now on the front burner and will be punctuated by the upcoming earnings season.  Get ready to buy bargains if the Treasury yield move down is also reflected in weaker 2nd half guidance in the earnings calls.

Coffee Beans

Americans’ confidence in the Supreme Court has hit record lows, according to a new poll. Only 25% of U.S. respondents said they had a “great deal” or “quite a lot” of trust in the institution, down from 36% a year ago. The new total is five percentage points lower than the last recorded lull, back in 2014. Source: Statista. See the full story here.

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