Yields Plunge Amid Economic Concerns
Recent market movements have captured the attention of investors and analysts alike, particularly with the upcoming Jackson Hole summit scheduled for the end of August. The financial landscape has been volatile, highlighted by a significant drop in yields. Yesterday, yields dipped below 4% for the first time in six months, and today they plummeted further, sinking below 3.8%. This shift was prompted by a worse-than-expected jobs report for July, raising concerns about the health of the economy.
The Impact of the July Jobs Report
The July jobs report revealed a slowdown in job growth, with only 114,000 jobs added last month. While this figure alone was concerning, the more alarming data point was the increase in the unemployment rate, which rose by two-tenths to 4.3%. This unexpected rise in unemployment dashed hopes that the rate might decline and reverse its recent upward trend.
The Sahm Rule and Recession Fears
The increase in the unemployment rate was significant enough to trigger the “Sahm rule,” a guideline developed by economist Claudia Sahm. According to this rule, when the unemployment rate rises by half a point from its cycle low (using a three-month moving average), it signals that policymakers should be vigilant about the possibility of a recession. The activation of this rule contributed to the selloff in stocks and the further decline in global bond yields.
Claudia Sahm’s Perspective
Despite the concerning signals, Claudia Sahm herself is not entirely convinced that a recession is imminent. However, she strongly believes that the Federal Reserve should have cut interest rates this week to mitigate potential economic damage. I told Premium Members on the Saturday Show that the Fed should have started cutting rates back in June 2024. Sahm cautioned that waiting an additional two months to cut rates could exacerbate economic issues and create unnecessary urgency. Her warning has heightened the probability of a half-point rate cut in September, as the Fed now faces criticism for being behind the curve on rate adjustments.
The Federal Reserve’s Dilemma
The Federal Reserve finds itself in a challenging position. Historically, the Fed avoids making decisions that appear panicky. The current gap between meetings is relatively long, with the next rate decision scheduled for September 18. This timeline provides the Fed with ample opportunity to adjust expectations, particularly during the annual Jackson Hole summit later this month.
Jackson Hole Summit: A Critical Event
The Jackson Hole summit has always been a significant event for economic policymakers and market participants. This year, the summit takes on added importance as the Fed navigates the complexities of the current economic environment. With growing concerns about the potential for a recession and the recent market turmoil, all eyes will be on the discussions and announcements made during this gathering.
IEF Technical Analysis Daily Time Frame
The chart shows the 7-10 Year Treasury Bond Ishares ETF (IEF) with a notable upward trend.
Price Action and Trend: The price has broken above the 200-day moving average (93.85) and the 50-day moving average (94.28), which is a bullish signal. The recent price surge to 97.68 suggests strong upward momentum.
Volume: The volume spikes correlate with the recent price increase, indicating strong buying interest.
Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI): The RSI is at 78.30, indicating overbought conditions. This could suggest a potential pullback or consolidation in the short term.
On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV): The OBV is rising, supporting the upward price movement and confirming the strength of the current trend.
Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More: The Stochastic RSI is at 1.000, indicating extremely overbought conditions. This further supports the possibility of a short-term pullback or consolidation.
Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More: The Chaikin Oscillator is positive, indicating accumulation and further supporting the bullish trend.
MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More: The MACD line is above the signal line and in positive territory, indicating bullish momentum.
Time-Frame Signals
12 Months: Hold. Given the strong current trend, holding the position is advisable. However, monitor for any significant changes in volume, RSI, and other indicators that might suggest a trend reversal.
3 Months: Buy. The strong upward trend, supported by moving averages and volume, suggests continued bullish momentum. However, be cautious of potential short-term pullbacks due to overbought indicators.
6 Months: Buy. The overall bullish indicators, including OBV and MACD, support a positive outlook over a medium-term period.
IEF Technical Analysis Weekly Time Frame
The chart provided is for the 7-10 Year Treasury Bond Ishares ETF (IEF), covering a period from September 2021 to July 2024. The analysis is conducted on the weekly time frame.
The price trend shows a significant downward movement from late 2021 through most of 2022, stabilizing in 2023, and exhibiting a slight upward trend in mid-2024. The current price is slightly above the Anchored Volume Weighted Average Price (VWAP) from September 2022, indicating potential support around this level.
Volume: There is a notable increase in trading volume during periods of price decline, particularly in the second half of 2022. Recent weeks show a moderate increase in volume accompanying the price rise.
Relative Strength Index (RSI): The RSI is currently at 67.64, suggesting the asset is approaching overbought territory. However, this momentum indicator shows strength in the recent upward movement.
On Balance Volume (OBV): The OBV line has been trending downward, indicating selling pressure. However, there are signs of stabilization in recent months.
Stochastic RSI: The Stochastic RSI is at 1.000, signaling overbought conditions. This could indicate a potential pullback in the near term.
Chaikin Oscillator: The Chaikin Oscillator shows positive values, suggesting accumulation. This aligns with the recent upward price movement.
MACD Oscillator: The MACD histogram shows positive values, and the MACD line has crossed above the signal line, indicating bullish momentum.
Time-Frame Signals:
1 Year: The recent upward trend and positive momentum indicators suggest a potential “Buy” signal for the short term. However, caution is advised due to overbought conditions in the RSI and Stochastic RSI.
2 Year: Given the stabilization in 2023 and recent upward movement, a “Hold” signal may be appropriate. This assumes the price will consolidate and potentially continue its upward trend.
3 Year: The long-term downward trend followed by stabilization and recent upward movement indicates a “Hold” signal. This is contingent on continued positive momentum and the price maintaining above key support levels.
Past performance is not an indication of future results. This article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡
Looking Ahead
As the Jackson Hole summit approaches, the financial world remains on edge. The recent drop in yields, driven by disappointing job growth and a rising unemployment rate, has intensified fears of an economic downturn. The activation of the Sahm rule has further fueled these concerns, prompting calls for decisive action from the Federal Reserve. Claudia Sahm’s advocacy for an immediate rate cut underscores the urgency of the situation. As market participants await the Fed’s next move, the Jackson Hole summit will serve as a critical platform for addressing these pressing economic issues and setting the course for the months ahead.
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This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content might not be suitable for your particular circumstances. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor.
