Credit spreads spike while S&P barely moves, history says bear markets follow. Investors have rotated into cash at the fastest rate since the COVID-19 pandemic. “Buy the first pullback after a new high, sell the first rally after a new low.”

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Crude oil up 2.9% today. Copper down 1.1%.

That’s not noise. That’s the stagflation fingerprint showing up in real time.

Oil rising is supply-driven inflation. Copper falling is demand destruction. When they diverge like this, it means the economy is getting taxed by higher energy costs while activity is already rolling over.

TIPS outperforming nominal Treasuries by 3% over 20 days confirms it. The bond market expects inflation to stay sticky even as growth cracks.

$IWM tells the whole story. RSI at 250.05 down 8% from highs, underperforming large caps by 5.5% in three weeks. Small companies can’t pass through rising input costs. They absorb the hit.

The Fed is boxed. Can’t cut aggressively with inflation expectations rising. Can’t hold with growth deteriorating. There’s no clean exit.

I think $IWM sees 242 before it sees 260. The most economically sensitive part of the market is pricing in something ugly that the indices haven’t caught up to yet.

Is the small cap signal leading or lying?

Mac10
@SuburbanDrone
Markets were happy today because once again Trump assured everyone that the war will be over “soon”. Last weekend I tentatively predicted that he would “take over” the Hormuz Strait as he stated he might do; however clearly the Pentagon waived him off of that idea as too risky. So instead two things happened over the weekend: First he punted the Hormuz crisis to the rest of the world to keep the Strait open. Secondly, he bombed Kharg Island. Since the weekend, shockingly the rest of the world has turned Trump down on his Hormuz offer. So Trump petulantly said the U.S. could just walk away because the U.S. is self-sufficient on oil.

But here is where it gets interesting. Oil is a global commodity which means that high oil prices in the rest of the world translate into high oil prices in the U.S. as well. Today, Moody’s said that in a few weeks, U.S. recession is assured regardless of energy independence:
https://marketwatch.com/story/moodys-says-a-recession-will-be-hard-to-avoid-if-oil-prices-stay-elevated-for-even-a-few-more-weeks-cd53a198?gaa_at=eafs&gaa_n=AWEtsqfEKC3fPz_SKyL56pPF0fAJnj3_A7jPCxn7Gj9zuGqvZxKBTVVZIZJRIZn5wKo%3D&gaa_ts=69b9d7ff&gaa_sig=KDqvbcNjhz1p8566Ao8qyey602HMFC4wDaEOU60g4U9AjhY6Xgg_oN7PmDb-GxJKbyMjn8UNrakYvhG55C6Wig%3D%3D
“The outlook for the U.S. economy will continue to darken as long as the Strait of Hormuz remains effectively closed to oil-tanker traffic, even though the U.S. now produces about as much oil and natural gas as it consumes”

Now we know why Trump bombed Kharg Island last weekend. He’s sending the 2,500 troops that are heading for the Middle East to take over Kharg Island and use that to negotiate for re-opening Hormuz.

What that means is that there will be one more major escalation in this war, and markets are not prepared for it.