Weekly Risk Signals

Despite any of the street’s attempts at spin, the numbers and the trends are just not looking good here. Economic deceleration is clearly what we’re looking at here and a recession later this year can’t be ruled out. The past two weeks have featured a significant pivot from stocks to bonds. This was the last domino that needed to fall in order to signal a broader risk-off shift in the markets.

Just last week, the S&P 500 was setting a new all-time high, yet the risk-off signals continue to build. With the lumber/gold signal at risk-off and Treasuries pushing higher over the past month, the market is shifting more cautious. The indicators that I’ve been warning about for some time - credit market issues, a housing freeze, accelerating inflation and high interest rates - may be manifesting.

The market remains stuck in a middle ground where gold, utilities and Treasuries are continuing to hold serve, yet the S&P 500 and the Nasdaq 100 are sitting at all-time highs. As long as the major fundamental metrics show that the U.S. economy is in a healthy place, investors don’t appear to be terribly inclined to abandon stocks yet. Improvement in the Treasury market should act as a reminder that there are risks building under the surface.