In the original article I shared what I thought would be the 10 most important charts to watch for global multi-asset investors in the year ahead (and beyond). In this article I have updated the charts + provided fresh comments.

[Note: I have included the original comments from the start of the year, so you can quickly compare what I’m thinking now vs what I said back then]

1. From Tightening to Tailwinds: the macro data pulse is looking so-far-so-good despite all the bad news and market volatility, and the key reason is all the monetary easing tailwinds from 2024/25 are having their maximum impact right now. So as far as I can tell, for now, the global economic reacceleration theme remains on-track.

“the biggest story in macro of the 2020’s echoes on into 2026, with monetary policy going from tailwind in 2020 to tightening in 2023, and back to tailwinds again now. This is coming at a time where nascent signs are showing an upturn in the macro pulse from previous stagnation (e.g. the global manufacturing PMI pictured below). The path laid out by the monetary policy leading indicator here is a very interesting one indeed, and it’s not the only sign.”

2. Global Growth Reacceleration: reacceleration remains a key word for me, but I am definitely mindful of the global energy markets disruption and potential financial conditions tightening + confidence effects of the Iran War. It probably does take some steam out of it, but ironically that may ultimately mean that the global growth reacceleration ends up less inflationary than it might have otherwise been (stronger growth but no overheating).

“the OECD leading indicators are also pointing to a major improvement in the global economy; we are going to need to get used to the term “reacceleration” (i.e. a big upturn out of previous slowdown; but not recession). Aside from monetary tailwinds there are several other factors working into this thesis such as fiscal stimulus, thematic capex, inventory cycles, and so-on. But there are a couple of logical flow-on effects we need to watch should this playout as planned.”

3. Inflation Resurgence: for now inflation remains contained. I’m still very much keeping tabs on inflation upside risks (energy market disruption + growth reacceleration + commodity bull market), but at least as of February the trend was one of declining inflation (compare and contrast that to 2021/22 where inflation was accelerating).

“one key flow-on will almost certainly involve inflation resurgence. We’ve already seen global inflation rates settling into a new higher range and even begin to turn up. Psychologically there’s also going to be a greater sensitivity to any signs of renewed inflationary pressures given what we’ve just gone through in the early-2020’s.”

4. Macro Metals: the growth-sensitive industrial metals complex are confirming the optimistic take on global growth (they broke out late last year, and have held steady so far. Keep an eye on this market!

“this one joins the list of charts to watch in the year ahead once again as it’s going to be a key real-time indicator to track whether the reacceleration and resurgence theme is playing out as planned (i.e. an upside breakout).

And interestingly enough, it’s already made a sharp upside breakout. As noted the other day, base metals are playing catch-up vs monetary metals, and this is as much a positive sign for commodities as it is the global economy.”

5. Cheap vs Expensive: expensive US stocks and gold have rolled over and neither are cheap yet, meanwhile commodities are turning up (still bullish on commodities in general), and bonds remain cheap.

“with gold (and stocks) already tracking at expensive levels, the obvious beneficiary from this macro prognosis is going to be cheap commodities. Indeed, if we see global growth reaccelerate and inflation resurgence, commodities are going to be a great hedge against that scenario.

But at the same time, don’t forget about that other cheap diversifier (bonds) in case things don’t quite work out as planned (more on that in a minute: chart 10).”

6. Tail of Two Commodities: it seems the rubber band is snapping back — as I noted at the start of the year, you always want to pay attention to extremes like this in financial markets because sooner or later they’ll find a reason to move, and move big.

From here, I think gold probably continues to struggle while oil likely is a case of higher for longer as the Middle East mess stays messy (which is very bearish for oil in the longer run as it likely accelerates the energy transition: more EVs, more solar, more work on energy innovation and independence; next-gen nuclear, etc — which is a good thing for humanity and civilizational progress).

“within commodities, as noted, gold has already had a very strong run, and may well continue given the strong monetary tailwinds behind it and strong technical momentum. But this chart shows a sort of stretching of the rubber band as oil lags and gold leads. A strong inflationary upturn is going to boost more cyclical commodities like oil (and may take some steam out of gold).”

7. Emerging Inflection Point: Q1 saw emerging market equities rise AND fall by double digit percentage points. It was almost inevitable that we would get a decent pullback in EM at some point given how far and fast they had gone and how consensus and extreme the bullish sentiments had become.

But I think the EM pullback is in the “healthy correction” category and I see nothing to negate the big inflection point that we have clearly seen in this chart — this one is going to be measured in years not months or weeks.

“it’s also the type of conditions under which emerging markets and global ex-US equities in general do well. And we’re already witnessing what looks like a major decadal turning point for EM equities.”

8. Newer Higher Plateaus: on the bearish side, the biggest risk right now [for US stocks] is that the current stockmarket correction ends up triggering a bigger reset in valuations and positioning (from generational highs) and into a bear market.

The strong/stable macro probably helps offset this risk, but when you come from a starting point like that in the chart below, small issues can quickly compound and things can deteriorate faster than you expect. So even though I’d say my comments so far have a bullish hue, this chart tells us to respect risk.

“one problem is that US equities are already very richly priced and household allocations to equities are at a record highs. Also consider that this is all heavily concentrated in tech, and it points to one thing…”

9. Dot-Com Echoes: same thing here, tech is rolling over from its most extreme overvaluation since the dot com bubble and defensives are turning up from similar extreme cheap relative value. Respect risk —have a plan, and have a think about capital defense and smart diversification.

“with US tech stocks trading at the most expensive relative valuations since the height of the dot com bubble – and defensives trading at the same deep discount, it almost looks too simple... If you want a harbinger chart, if there were ever going to be post-mortem clues that flagged the peak of this market cycle, it’s probably going to be this chart.

While an orderly economic upturn is likely to be supportive, a rapid reacceleration and resurgence in inflation is likely to trigger two things: rotation into beneficiary assets (traditional cyclical stocks, commodities) and out of tech + potentially an upswing in interest rates; which has historically hurt the more long-duration growth-tech stocks.

Hence a rethink on asset allocations is going to be required as the things that worked well in the past few years are unlikely to keep delivering in this type of scenario.”

10. Market Cycle Signal: on the flipside, bond allocations say similar things about the state of the market cycle and the inherent risks [last time bond allocations were this low was just prior to the dot-com bubble burst AND again just before the financial crisis].

But also, for contrarians, it says: hey maybe bonds are actually good (seems like everyone hates bonds these days — everyone is saying how they no longer act as a diversifier to stocks, fiscal problems, low yields, etc etc).

You know what they say when everyone says the same thing…

For me, bonds are a case of when, not if (and yes I am working on and monitoring the tactical outlook and timing aspect for bonds: e.g. see recent report on treasuries here).

“lastly, this one not only adds to the cautionary tone on the market cycle, but also provides a prompt to have another think on bonds. There’s two ways we can be wrong on that “reacceleration” idea I’ve been going on about: e.g. more of the same middle-porridge (not too hot, not too cold), or: recession.

With bonds trading on cheap valuations and investor allocations to bonds at cycle lows, it makes them a classic contrarian play –not something to forget about (and yes: bonds are still downturn diversifiers). So again, the defensive barbell would be bonds to protect against recession and deflation, vs commodities to protect against a rapid reacceleration and inflation resurgence.

The good thing is we’ll probably get clues along the way, so we can scale-up exposure as evidence unfolds and we build clarity on the next big risks/opportunities.”

Quarterly Strategy Pack

For more detail and recommendations on the macro/market outlook in 2026 (particularly as it relates to asset allocation and top-down global investment strategy), check out our Q2 2026 Quarterly Strategy Pack — which will be published later this week (+webinar and Q&A sessions for our Institutional/Professional service clients).

Thanks for reading, questions/thoughts welcome in the comments section + be sure to like and share this post on Substack.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

In case you missed it, also see the latest Weekly S&P500 ChartStorm:

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The Weekly ChartStorm

Hand picked charts and insights to help you Save Time, uncover Opportunities, and stay on top of the Stockmarket Outlook

By Callum Thomas

.

Unlike the usual Weekly ChartStorm (which focuses on the US stock market and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with deep-dives into topics spanning macro, markets, stocks, commodities, regions, and various other issues of interest.

Learnings and conclusions from this session:

• US tech stocks have peaked (+rolled over vs US non-tech, global tech).

• Sentiment is slumping from previously extreme bullish/complacent.

• Positioning has also peaked, early signs of rotation showing up.

• Valuations are ticking down from extreme expensive levels.

• Stretched valuations reflect strong earnings (but that’s also a risk).

Overall, tech stocks have peaked for now. The problem is they’re coming from a starting point of overvalued and overhyped. The benign/bullish outcome would be a plateau in tech and bullish rotation (into traditional cyclicals, global), while the bearish outcome would be outright downside (and rotation into defensives). This report looks at the evidence so far and weighs the next steps…

1. Tech Top (Absolute Terms):  as mentioned a couple of weeks ago, tech has topped.

The Nasdaq 100 peaked on the 29th of October 2025, and has not yet made any further new highs since. Perhaps the only consolation is that it’s still technically in an uptrend (tracking above its upward sloping 200-day moving average), and most importantly — it has not outright broken down yet.

2. Tech Top (Relative Terms): on a relative basis US tech stocks have not only peaked but broken sharply lower vs non-tech stocks.

Source:

3. Tech Top (vs Global): US tech stocks have also peaked relative to Global (ex-US) tech stocks (and with a confirmed lower high).

4. Tech Vibe Shift: we’ve also witnessed some brutal price action in the Nasdaq’s old traveling partner (Bitcoin). As a barometer of tech/speculative sentiment, this is clearly painting a gloomy picture.

5. Flows & Positioning: similarly, tech sector implied investor allocations have peaked after reaching a record high (not far off 50%(!)), and rolling annual net flows to tech actually peaked at the end of 2024. So it’s a picture of former extreme-bullish sentiment peaking and rolling over (a classic bearish technical signal).

6. Tech Credit: another intriguing datapoint has been the surge in credit risk pricing for the tech sector. It was all fun and games with AI hype when it was just equity markets, but now that credit markets are involved it doesn't seem so fun anymore…

(that said, spikes in credit risk pricing like this can serve as contrarian signals)

7. Valuations: all of this (weakening technicals, bearish sentiment signals) is set against a backdrop of expensive valuations. US Tech stocks have been bid up to extremely expensive levels vs history, vs non-tech, and vs global tech.

8. Different This Time: bulls will probably push back about now and say that it’s different from the last time valuations were this stretched because earnings are on the rise and there’s a fundamental backing to it. But I don’t think we need to invoke “just like dot-com” to highlight the risks here, and even if the dream run in tech stocks over the past decade has been backed by rising earnings, you can still have valuations overshoot and investor sentiment get carried away.

9. “Expensive for a Reason” for instance, bulls can definitely point to the exceptional profitability of US tech stocks, as illustrated in the chart below (+strong trend in trailing earnings + expectations of continued strong uninterrupted earnings growth into the future).

But this also presents a vulnerability. If extremely high tech stock valuations reflect strong profitability, what if profit margins peak and rollover from cyclically extended levels? And if expensive valuations reflect the expectation of strong uninterrupted future earnings growth, what if earnings plateau? or even worse, what if earnings were to decline?

The big vulnerability here is that you have stretched valuations underpinned by stretched profit margins. Even if you get only a mild cyclical downturn at some point, that whole confidence structure could come crumbling apart.

10. So what’s next? this chart basically lays out the best and worst case for what happens after the peak in tech. It shows tech stocks’ market cap weight rolling over from record highs, cyclicals’ weight ticking up off the lower end of the range, and defensives’ up from record lows. And therein lie the clues for the two key scenarios of how the tech-top might unfold from here:

Bullish/Best Case = [Bullish Rotation] in this scenario tech just peaks and plateaus; shifts into more of a ranging regime, or at least a more gradual and volatile up-trend — but investors basically give up on tech and chase after better returns in Traditional Cyclicals (which is entirely possible as a global growth reacceleration will disproportionately help traditional cyclicals like industrials, materials, energy, financials, and global stocks). Under this scenario the market as a whole could continue to move higher, or sideways at worst.

Bearish/Worst Case = [Bearish Rotation] the worst case would be that tech rolls over into a bear market (e.g. as a result of declining valuations, collapsing sentiment, and/or deterioration in earnings/fundamentals). In that case you’d likely see rotation out of tech and into defensives, and the stockmarket as a whole declining.

n.b. “Super Sector” definitions: Tech+ (technology, communication services, consumer discretionary), Traditional Cyclicals (industrials, materials, energy, financials), Defensives (utilities, healthcare, consumer staples)

…well ?

The next logical question would be: “so which one is it??” — all the evidence I see so far points to the former (bullish rotation), and I think there is sound macro/value/technical reasons to expect a continuation of that dynamic.

The Defensives/Bearish rotation scenario probably only comes through if we tip over into recession, or some kind of shock rattles the system. From a practical standpoint I will be monitoring technicals first (a breakdown in QQQ would be a key trigger), credit spreads (for further issues in tech or spillovers), and earnings/macro (for a lead on the fundamental side of things).

I will update as usual in the regular Weekly ChartStorm when and if I see any of these warning signs or triggers show up, but for now I would be more focused on the upsides (bullish rotation, cyclicals, global) and staying data/facts/chart-driven as things unfold.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

Other services by Topdown Charts

• Topdown Charts Professional —[institutional macro/multi-asset research]

• Topdown Charts Entry-Level Service —[entry-level version of the above]

• Weekly S&P 500 ChartStorm —[US Equities in focus]

• Monthly Gold Market Pack —[Gold charts]

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, commodities, regions, and various other issues of interest.

Learnings and conclusions from this session:

• Bond market volatility has dropped significantly.

• FX volatility has also plunged (signals a macro stalemate).

• Japanese government bond yields are in higher-for-longer mode.

• US treasuries also face higher-for-longer risk (for longer).

• Yet bonds retain (nuanced)value as diversifiers & downside dampeners.

Overall, there’s a good few charts worth noting in this session from a macro-market analysis standpoint (e.g. higher for longer risk; which impacts the outlook for both bonds and stocks; if it becomes disorderly), but also some important food for thought on the asset allocation front…

1. Bond Volatility: we’ve seen a major drop in bond market volatility (the MOVE index). This simply maps to the fact that realized volatility has dropped significantly (bonds haven’t really been doing all that much). But really what we are talking about here is the setting in of a major macro stalemate and consolidation.

The stalemate is basically a tension between competing macro risks e.g. recession and deflation (which would send yields lower) vs reacceleration and inflation resurgence (which would send yields higher). In absence of clear evidence either way, the bond market naturally has been locked into a stalemate.

But one thing you learn early on in financial market analysis is that stalemates don’t last + periods of low volatility are often good predictors of future higher volatility (and vice versa). The interesting thing is this not the only space we see this sort of setup developing…

Source: 

2. Credit Spreads:  globally credit spreads have likewise crunched down toward the lows. This is totally natural in absence of any new bad news, downturn, or crises, but it does show a market that is priced for continued calm.

Source:  @elerianm

3. EM Bonds: similarly, emerging market bond yield spreads vs treasuries have crunched down to decade+ lows as EM central banks have been cutting rates and macro/political conditions remain largely benign.

Source:  Ryan Lemand

4. FX Volatility Too: average option implied volatility has crunched lower in FX markets too. Again, I would suggest this represents more of a momentary stalemate than anything, and in that respect it really is a calm-before-the-storm type of indicator (e.g. DXY has been locked in a tight range in lieu of a catalyst or clear directive on next steps). This too shall pass.

Source:

5. BOJ Yield Curve (out of) Control: one area within the global bond markets that is -not- calm is Japanese government bonds. Bond yields are surging in Japan as the BOJ has taken it’s foot off of the market, and the macro winds in Japan steadily shift.

6. Japan’s Macro Tides: the thing is it’s not just about BOJ policy, it’s also a reflection of basically a macro breakout in Japan. They have shaken-off the stagnation and deflation of the previous couple-decades, and are now seeing a major upturn in nominal growth. This has meant great things for Japanese equities, but also means a reality of a new normal higher-for-longer dynamic playing out in the Japanese government bond market.

This has the potential to ripple into global markets due to the traditional importance and influence of Japan in carry trades (prospect of spillover into higher global yields, different FX market behavior than the past, and possible repatriation flows from carry-trade unwinds if domestic yields get attractive enough).

In other words, I don’t think we can look at Japan the same way we grew used to over the past couple of decades.

7. Higher for Longer risk: over to the USA, higher-for-longer risk is arguably also lingering longer, with the long-term rate of inflation still trending higher.

In practical terms, unless you get a recession and period of deflationary pressures to derail it, it’s likely we see bond yields tending to drift higher — and especially so if you get a growth rebound this year both globally and in the USA (with stimulus tailwinds hitting the sails this year).

To be clear, I think treasuries will perform well in a downturn and will serve a strong role as diversifiers and downturn-dampeners, but they are still at risk in an environment of stronger growth or rising commodity prices.

8. Low Yields, Low Returns: but one good thing about higher yields is the clear (and economically obvious point) that higher yields are a good predictor of higher future returns for bonds (albeit the journey to higher yields can be painful).

(also, n.b. on this one I would point out that while a 4% predicted return for bonds is not great in absolute terms… in certain environments you’d rather take a small positive than a big negative — which again goes to the point about the value of bonds in diversification and asset allocation)

Source: J.P. Morgan Asset Management via @TheIdeaFarm

9. Declining Duration: another interesting point to consider is average maturities have been steadily declining for key global bond benchmarks — as Torsten Slok at Apollo notes: “Governments are issuing more short‑dated paper to minimize debt‑servicing costs. As a result, the average maturity of the sovereign bond index is declining rapidly”.

This means the typical duration or interest rate sensitivity is also falling, which is a double-edged sword. Lower duration means smaller capital losses as rates rise, but also smaller capital gains when rates fall. And if you hold bonds for downside protection then you’d generally want longer-duration to maximize gains as bond yields decline —in order to help offset likely equity market declines in such a scenario (bond yields usually fall during deflationary recessions; which are bad for stocks).

Source: Apollo via @MikeZaccardi

10. Decade-to-Date Returns: speaking of returns and asset allocation, here’s how some of the major asset classes are tracking so far in the 2020’s. Gold (+large/growth) is at the top, and bonds are at the bottom.

It makes you wonder how the rest of the decade will unfold… in 5 years time will this chart look the same, or opposite, or something entirely other?

Source:  @MikeZaccardi

Thanks for following, I appreciate your interest and support!

What did you think of this note?

As previously mentioned my intention is to put out semi-regular fixed income ChartStorms like this — feedback/suggestions are welcome (my thinking is I’ll vary it between deep dives into particular sub-asset classes when there are interesting risks/opportunities vs general insight-tours through fixed income markets).

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research/Founder at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

Other services by Topdown Charts

• Topdown Charts Professional —[institutional macro/multi-asset research]

• Topdown Charts Entry-Level Service —[entry-level version of the above]

• Weekly S&P 500 ChartStorm —[US Equities in focus]

• Monthly Gold Market Pack —[Gold charts]

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, commodities, regions, and various other issues of interest.

Learnings and conclusions from this session:

• Technicals: EM is at a bullish inflection point.

• Valuation: EM equity valuations are still cheap.

• Positioning: investor allocations to EM are still historically low.

• Macro: EM earnings are breaking out +strong monetary tailwinds.

• Sentiment: some signs of complacency, increasingly bullish sentiment.

Overall, there’s a growing body of evidence to suggest that we are going through a major bullish inflection point for emerging market equities. The below set of charts looks at the key technical developments, macro-fundamentals, behavioral aspects, and weighs what could go right/wrong for EM equities from here…

ICYMI: check out the Weekly S&P500 ChartStorm — Best-of 2025 Edition.

1. Emerging Inflection Point: an inflection point is underway in emerging market equities. Skeptics will say that it’s just another false dawn. But pattern recognizers will highlight the tendency of EM to go on large-scale multi-year runs.

Source:  10 Charts to Watch in 2026

2. Big Beautiful Breakout: probably the most significant development in EM equities, at least from a technical analysis standpoint has been in an index that is not event publicly available.

The below chart is an equal-weighted index I’ve put together using EM country index returns in US$ and excluding China (although I would note the outlook for Chinese stocks is quite bullish). This is what you call a Brobdingnagian Breakout — a long period of ranging, consolidation, reform, resetting, base-building, and then a decisive breakout. Just look to the early-2000’s for how this type of breakout can unfold.

Source:  My Best Charts of 2025

3. Broadening Participation: one of the most compelling things about the chart above is that it’s equal-weighted, so it’s not unduly driven by a single large country. Then add to that the country breadth chart below, which is showing the majority of EM local stock indexes running above their 200-day moving averages (i.e. uptrend) and a breakout of trend-channel for the MSCI EM index.

The technicals are very compelling.

4. Policy Tailwinds: but then you have to ask, what’s behind the technical developments, and is it sustainable? One key cyclical force in play is the big pivot to easing in emerging markets. We are seeing increasing monetary tailwinds in force here (which also include a transition from bull to bear market in the US dollar, and generally buoyant funding conditions).

5. Earnings Breakout: another key development on the macro/fundamentals side of things is a clear upturn in the earnings pulse for emerging markets. The consensus 12-months forward earnings estimate for the MSCI Emerging Markets Index (black line below) is basically breaking out as well.

6. Light Allocations: meanwhile investors are still running historically light allocations to EM equity funds. Plenty of room to run here.

7. Cheap Valuations: and valuations are still at the low end of the historical range (+ are also tracking below developed markets, and well below US valuations).

So it’s a case of undervalued, underallocated, and underappreciated upside as the macro-fundamentals undergo compelling improvement.

8. Bullish Sentiment: yet, sentiment is starting to get elevated. And there is the curse of the consensus —people are starting to get increasingly bullish on emerging markets: this is precisely the kind of false-dawn dynamics that have played out a number of times over the past decade.

But with the breakouts, tailwinds, and genuine macro-fundamental improvement that we have seen, I have greater confidence that this is a genuine transition out of range-trading and into a new uptrend and bull market for EM equities —— and it’s entirely normal to see sentiment turn bullish; and sometimes extremely bullish during a trend change like this.

9. Confidence vs Complacency? one complicating chart is the composite risk pricing sentiment index below (tracks equity volatility, sovereign CDS pricing, currency volatility, and credit spreads). The good thing is that it represents confidence and calm, which is helpful in keeping financial conditions supportive, macro/earnings momentum strong, and reinforcing the uptrend in stocks.

But it can also represent complacency at these sort of levels (and hence constitute a contrarian bearish signal). To that end, probably the key risks for emerging markets would be: USD resurgence (USD is currently in a bear market, which is supportive for EM), geopolitics (currently a mixed bag), global recession (currently there is evidence for the opposite; I expect global growth reacceleration).

10. EM Stock/Bond Ratio: lastly, I also wanted to highlight how the EM stocks vs bonds ratio has also broken out — this is a key development on the bullish side as the last two big false-dawns in EM equities did -not- feature a breakout here.

So while there are a few credible downside risks, and some signs of excess optimism or complacency appearing, I’d say the balance of evidence points to the upside for emerging markets. In other words, yes: this probably is the big inflection point we’ve all been waiting for. Bullish emerging markets.

Source:

If you found this post interesting/useful, please share it on social media or forward it to a friend or colleague — also be sure to check out my post: Commodities “Off-Topic ChartStorm” from a couple of weeks ago (very similar dynamics underway in that space too).

Bonus Chart — EM & Commodities “Confirmation”

On the topic of Commodities, we’ve seen a breakout in the more commodity-sensitive Emerging Markets ex-Asia along with the breakout in commodity prices. These two themes (emerging markets and commodities) are closely interlinked, and so it’s a very good sign to see the cross-confirmation in this chart.

Thanks for your interest & support.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

Other services by Topdown Charts

• Topdown Charts Professional —[institutional macro/multi-asset research]

• Topdown Charts Entry-Level Service —[entry-level version of the above]

• Weekly S&P 500 ChartStorm —[US Equities in focus]

• Monthly Gold Market Pack —[Gold charts]

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, commodities, regions/countries, and various other issues of interest.

Learnings and conclusions from this session…

• Valuation: commodities (asset class level) are cheap.

• Cycle: serious underinvestment in supply + cyclical demand upturn.

• Monetary: supporting the cyclical upturn is substantial monetary tailwinds.

• Sentiment: investor sentiment is lukewarm, allocations are historically low.

• Technicals: a new cyclical bull market is getting underway; still early.

Overall, there’s growing evidence for a new cyclical bull market in commodities (following a cyclical bear market from 2022-24). This is likely to become a major macro theme in 2026 (not to mention a very interesting opportunity for investment in both commodity related stocks and commodity prices themselves). Check out the charts and datapoints below and let me know what you think in the comments.

ICYMI: check out the Weekly S&P500 ChartStorm — Best-of 2025 Edition.

1. Follow the Leader: gold has blazed the path, commodity catch-up comes next.

2. Commodity Stocks Front-Running: similarly, the equal-weighted basket of global commodity stocks is pointing to a new cyclical bull market in commodity prices.

3. Cheap starting point Valuations: meanwhile we’re coming off of cheap valuations for commodities — and you always want to pay close attention when a cheap asset/market is seeing improved technicals.

(and p.s. I mean commodities in the aggregate, i.e. asset class level — and specifically in this case the more diversified GSCI (light energy) index)

Source:  Chart of the Week - Commodities

4. Light Allocations: add to that; investor allocations to commodities in the aggregate remain very low (and n.b. most of the uptick in this chart is due to precious metals —allocations to commodities ex-gold is near record lows).

5. Lukewarm Sentiment: sentiment across commodities is basically neutral, lukewarm at best (plenty of room for many minds to change and get on board as commodities begin to rally).

6. Monetary Tailwinds: moving over to the macro/fundamental side of things, we’re seeing the amassing of major monetary tailwinds heading into 2026. Historically this kind of shift to easing has lit a fire under commodities.

Source: GoldNuggets — Commodities in Focus

7. Demand — Cyclical Upturn: a key channel for that is what I expect to be a global growth reacceleration into 2026, these rising macro tides will help lift demand for all commodities (e.g. the annual rate of change in commodity prices tracks closely with the global manufacturing PMI).

8. Supply — the Commodity Capex Depression: this is all set against a backdrop of serious underinvestment in supply. It’s entirely logical and natural to see a capex slowdown after the prolonged and substantial period of investment that we saw during the 2000’s commodity supercycle. But now the seeds are sown for the next supercycle.

9. Supercycling: speaking of which, it looks like we are already in a new supercycle for commodities, and the way I see things; we’ve basically just wrapped up a cyclical bear market (from 2022-2024) and a new cyclical bull market is now underway. This is significant because it’s set against a structural bull case (underinvestment in supply, thematic demand drivers such as electrification and energy transition, new space race, AI & robotics race, geopolitics, and infrastructure (re)building). So we shouldn’t underestimate the opportunity in commodities as bullish forces set in motion, nor the upside risks this will present to inflation.

Source: 

10. Only Just the Beginning: lastly, to close out, while selected commodities like gold and silver have had an exceptional run, my view is we are still early in the new cyclical bull market. A key case in point is average pair-wise correlations across commodities: for now the rally is somewhat narrow, and we are yet to see the crowd arrive (i.e. when you tend to see all commodities bid up and moving together as investors and speculators buy anything and everything — like what we saw in the mid-to-later stages of the 2000’s commodity bull market (and again more recently into 2022)).

So I would advise taking a bit of time out as we reflect on 2025 and ponder 2026 to study up on this often overlooked asset class…

Source:

Thanks for following, I appreciate your interest!

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

Other services by Topdown Charts

• Topdown Charts Professional —[institutional macro/multi-asset research]

• Topdown Charts Entry-Level Service —[entry-level version of the above]

• Weekly S&P 500 ChartStorm —[US Equities in focus]

• Monthly Gold Market Pack —[Gold charts]

• Australian Market Valuation Book —[Aussie markets]

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, commodities, regions/countries, and various other issues of interest.

Learnings and conclusions from this session:

• Bonds remain in a bear market (having peaked in 2020).

• Sentiment/positioning remains consensus bearish on bonds.

• Yet, treasuries look cheap and technicals are tentatively turning.

• Higher-for-longer risk remains front of mind (especially globally).

• History suggests long-term cycles in yields (but cycle compression?).

Overall, it’s clear the bond bear market has laid lasting damage to sentiment on bonds. Arguably this has helped created a bullish contrarian setup in waiting. But historical and global perspective suggests some caution, and we await price and macro confirmation as upside catalysts for the bond bull breakout…

1. The Great 2020’s Bond Bear Market: Adjusting for inflation and including interest reinvested, the popular long-term US treasuries ETF [TLT] is basically still in a bear market (having peaked in 2020). It’s also been dead money for those who bought and held 20 years ago. But as all good things come to an end; all bad things likewise come to an end too — so it raises a question: when will the bond bear market end?

Source:  Topdown Charts Research

2. Bonds Basing? It’s a question many are pondering, and while TLT is still basically in bear market, we’re also seeing a clear basing process in progress.

Source:  @Mr_Derivatives

3. Heavy Shorts: Meanwhile, shorts are piling up. While some of this may be linked with derivatives arbitrage, it is actually consistent with a lot of other sentiment data I’ve seen — and I would confidently say the consensus is still bearish on bonds.

Source:  @SubuTrade

4. Light Allocations: Another key positioning datapoint is the combined asset allocation indicator below (uses data from AAII survey, ICI fund data, and Fed financial system stats), which shows individual investor bond allocations are sitting at 18-year lows. Investors hate bonds.

Source:  Chart of the Week - Bond Allocations

5. Consensus = Range-Trade for Longer: And another somewhat related datapoint here shows that fund managers are basically expecting US 10-year treasury yields to stay stuck in the range (consensus 68% sees US 10yr yields between 3.5-4.5% by year-end 2026). A very small minority see bond yields breaking lower (11%) while 20% say higher than 4.5% — so basically a consensus of neutral-to-slightly-bearish on bonds.

Source:  @MRBullMktEver

6. Treasuries Valuation Indicator: Meanwhile, my valuation indicator for US treasuries (in the 10-year maturity range) is ticking up from cheap levels — and the 10-year treasuries price index is ticking up from a logical support area. So I think there is cause to keep treasuries on the watch-list, and to begin scaling up exposure (particularly as stocks look increasingly expensive, and the economy softens).

Source:  2026 Outlook Webinar Replay (+Slide Pack)

7. Global Long-Term Government Bond Yields: But because it’s never that simple, here’s one curveball to throw into the mix — if you look at developed markets long-term sovereign bond yields it’s a fairly clear picture of an uptrend (which p.s., is bearish for bond prices).

Source:  @JasonP138

8. Higher For Longer? For those wondering why bond yields have moved higher, a big part of it has to do with this chart. The long-term nominal rate of economic growth made a step change following 2020. Ultimately bond yields reflect the state of growth and inflation, so unless we get a recession or shock which drives growth/inflation lower, then it could well be that we see bond yields linger higher for longer.

Source: 

9. Long-term Perspective on Interest Rates: Zooming out, here’s a very long-term view of interest rates. Some would argue that there will be a period of payback for the zero-interest rate policy era, and that higher-for-longer is logical and historically normal.

Source:  @MikeZaccardi

10. US Interest Rates History: Meanwhile here’s the long-term US picture for short-term rates, US 10-year treasury yields, and corporate bond yields. You could also make a case for long-term up/down cycles here too.

As a random reflection though, one interesting possibility would be a compression of cycles as things accelerate on multiple fronts (tech development, geopolitical tensions, demographics, debt, etc). In that sense you might argue that the up-phase in yields has been rapid and a down phase will come sooner and sharper than in the past due to cycle-compression.

In the meantime though, keep watching the charts — price will tell us when things are about to get moving for bonds, and macro will confirm…

Source: 

Thanks for following, I appreciate your interest!

p.s. Let me know if you found this useful — would you like to receive more updates like this? I am thinking about doing an (almost)fortnightly or at least monthly ChartStorm on Fixed Income [treasuries, corporate bonds, interest rates, private credit, etc] as a regular feature…

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

Other services by Topdown Charts

• Topdown Charts Professional —[institutional macro/multi-asset research]

• Topdown Charts Entry-Level Service —[entry-level version of the above]

• Weekly S&P 500 ChartStorm —[US Equities in focus]

• Monthly Gold Market Pack —[Gold charts]

• Australian Market Valuation Book —[Aussie markets]

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, commodities, regions/countries, and various other issues of interest.

Learnings and conclusions from this session:

• Gold has peaked short-term, but remains in an uptrend.

• Key tailwinds are still in force (e.g. central bank buying, (geo)politics).

• Yet valuations are getting extreme expensive, sentiment consensus bullish.

• Silver looks to be better placed given relative value vs gold, macro tailwinds.

• Meanwhile miners see fat profits (but also rich valuations).

Overall, while there are significant tailwinds still in play, strong technicals, and historical analogs suggesting room-to-run —with gold valuations stretched, price peaking in the short-term, and consensus bullish sentiment, it’s more of a neutral outlook vs clearly bullish back at the start of the year. Silver looks better placed, while miners see high profits but also high valuations.

NOTE: Much of the charts in this report come from the — be sure to check it out and subscribe to the free GoldNuggets Digest publication for more gold/metal/macro updates.

Monthly Gold Market Chartbook

The monthly Gold Market Chartbook is packed with over 70 charts, unique data series, and specialized indicators to help you make sense of gold, precious metals, and miners.

By Callum Thomas

1. Gold Price in Perspective:  On the daily charts gold peaked about a month ago and has been in consolidation mode since. But zooming out to the long-term monthly chart, a couple of things standout.

First, it’s clearly still in an uptrend (price above moving average, moving average upward sloping). Second, if you look at the early-70’s + late-70’s + early-00’s big breakouts, it still looks kind of “early” in the process.

Source:  Monthly Gold Market Chartbook

2. The Great Bank Buy-up: Meanwhile a lot of the drivers of the current bull market in gold still seem to be in place. We’re still seeing significant central bank buying (and word is that the actual numbers are higher than that reported), geopolitics is also still an issue (the precautionary reserves diversification aspect is unlikely to abate any time soon, and a number of hot-spots are liable to flare-up at any moment).

The other aspect is political risk remains an issue in the USA (+USD heading into bear market mode) and the fiscal situation is not at all inspiring. Add to that the prospect of inflation resurgence… or even the opposite; a deflation scare prompting more QE and policy easing, and there’s a litany of macro narratives that one can reach to in espousing a bullish gold outlook.

Source:  GoldNuggets Digest — The Gold Bull Market

3. Retail Participation: Yet, retail has not really been on board for this bull. Going off ETF market implied allocations, retail investors are still running relatively light allocations to gold (still below the 2020 high, and a fraction of where it got to in the late stages of the 2000’s bull). You could argue that there is room to run on this front, but at the same time it seems tech and crypto have claimed greater mind and wallet share. On that front, maybe it takes more downside in tech and crypto to trigger a bit of rotation into things like gold.

Source: GoldNuggets Digest — Consolidation Mode

4. Gold Valuation Indicator: On the bearish side of things, my composite gold valuation indicator has reached extreme overvalued levels. This makes it harder to have a strong view — yes there are significant macro tailwinds, yes it’s still in an uptrend, but when valuation indicators reach extremes like this the best case is typically a significant period of consolidation and the worst case is a correction or major cycle peak.

So while I was quite optimistic on gold earlier this year, right now I’d say the easy answer is neutral.

Source:  GoldNuggets Digest — Valuations in Focus [Methodology & Inputs] (← see that post for the thinking and method behind the valuation indicator)

5. Silver Surge: Over to the other big precious metal, Silver has also been making some very interesting moves — breaking out through several key levels and cracking the US$50 mark. But like gold, it also seems to have run into a bit of resistance… and sell-side sentiment is perhaps uncomfortably consensus bullish. So it does make you wonder alongside gold as to whether we need a bit of a healthy pullback or period of digestion to clear the path higher.

Source: GoldNuggets Digest — Silver Star

6. Metal Price Procession:  One interesting thought on this is the transition in leadership from monetary metals to industrial metals. Silver sits across the two camps; partly a precious metal, and partly an industrial metal. The prospect of catch-up for silver (and industrial metals) is top of mind for me.

Source:  GoldNuggets Digest — Trends, Cycles, Metals

7. Silver vs Gold — Relative Value:  Silver is also turning up relative to gold from “cheap” levels. I’ve outlined my bullish global growth thesis for 2026 elsewhere, and I’d say if we do see that come online that will be bullish for silver vs gold (and industrial metals), and it could just be the thing to give silver a second wind.

Source:  Monthly Gold Market Chartbook

8. Silver Allocations: Another point is investor allocations to silver look pretty low vs history, but are steadily turning up. For something that has potential dual-tailwinds (monetary and macro) I’d say this looks early; room to run.

Source: 

9. Gold Miners — Profit Time!  Lastly, on gold miners, we are seeing a rapidly widening gap between the annual average gold price and the average cost of production. On the upside, this (should) mean larger profits for gold miners, but also likely larger capex to bring new supply online.

Source: 

10. Gold Miner Valuations: But with gold miners up almost 3x off the 2022 lows, it does make you wonder if this is already in the price to some extent.

It is possible to see valuations become justified as widening margins work their way through to better reported financials, but a key ingredient here is that the gold price needs to ideally stay elevated if not head higher to support a further push higher in mining stocks.

So much like the view on gold itself, we’re in risky territory and it’s not as clear-cut a bullish outlook as it was earlier this year. So to sum it all up, basically I’d say: neutral gold, neutral miners, and constructive on silver (and industrial metals).

Source:  Monthly Pack

I hope you enjoyed this rare “off-topic ChartStorm” and found it useful/informative. Please be sure to share if you think others will find it interesting.

p.s. if there are any other topics of particular interest you’d like to see covered in a future edition please let me know in the comments.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

Other services by Topdown Charts

• Topdown Charts Professional —[institutional service]

• Topdown Charts Entry-Level Service —[entry-level version]

• Weekly S&P 500 ChartStorm —[US Equities in focus]

• Monthly Gold Market Pack —[Gold charts]

• Australian Market Valuation Book —[Aussie markets]

Learnings and conclusions from this week’s charts:

• Gold prices are on the rise globally.

• Central bank activity + (geo)politics are key drivers.

• There’s room to run for the secular bull market in gold.

• Silver also sees upside (relative value, macro tailwinds).

• Miners are cheap with defensive attributes + upside potential.

Overall, while the move in gold prices over the past couple of years has been sharp, significant, and substantial, there appears to be room to run. I present charts and views below to help illuminate what’s been going on, and frame the prospect for further upside across precious metals and miners.

NOTE: Much of the charts in this report come from my new service; the — be sure to check it out and subscribe to the free GoldNuggets Digest publication over there for more gold/metal/macro updates.

Monthly Gold Market Chartbook

The monthly Gold Market Chartbook is packed with over 50 charts, unique data series, and specialized indicators to help you make sense of the market.

By Callum Thomas

1. Gold Price: As noted, the US$ gold price has broken out to new all time highs. This is an extension of the underlying uptrend and secular bull market in gold. It’s also echoed-in and confirmed-by the strength in global gold prices, with the equal-weighted 14-currency global gold price index already breaking out to new highs a few weeks ago.

Source:  Gold Market Chartbook - January 2025

2. Gold Drivers — Policy Uncertainty:  In terms of what’s driving the strength in gold there’s a few things going on, but most recently a key element is the spike in (geo)political risk. One example of this is tariff risk, which has spurred a spike in COMEX gold inventories (people front-running the risk of tariffs on physical gold imports by moving holdings from London to the USA). But overall there is a clear (geo)political risk premium getting priced-in as the geopolitical norms of the past few decades give way to a new era in international relations.

Source:  Global Cross Asset Market Monitor

3. Gold Drivers — Central Bank Buying: Another major driver of the secular bull market has been diversification of central bank reserves (aka central bank buying). Global reserve allocations to gold have doubled over the past 10 years, and this is likely to be an ongoing trend given concerns around US fiscal sustainability and geopolitics (sanctions risk).

Aside from that central banks have also been giving it an extra boost by rushing into rate cuts, expanding M2 money supply, and globally adopting an overall monetary easing bias. These are the kind of trends that tend to be multi-year in nature, and it’s hard to imagine a scenario where you see a sudden shift or reversal in all this, so in other words the current major drivers of the gold bull market are likely to persist.

Source: 

4. Gold Valuations — Has it gone Too Far? But there is a natural question around “are we too late to get on board?” or simply “has it gone too far too fast?” I think these are the right questions to ask when you’ve already seen a really strong run. Gold bulls will be quick to point out however that there have been much larger, longer, extended moves in the past.

From a practical standpoint a few questions come to mind as a heuristic or framework for thinking about this: a. is it over-valued? (slightly, but my composite valuation indicators are still far from levels where it peaked in recent decades; room to run); b. is the crowd all-in? (the opposite I would say: my data shows ETF *outflows*, very low allocations by retail investors, and media apathy; room to run there too); c. are the monetary tailwinds turning? (nope, still pumping, key cyclical and thematic drivers show no signs of letting up; room to run); and d. are there any technical warning signs? (none of the indicators I track are flagging any immediate risk flags, trend is strong; room to run).

So while these things can change, and these are probably the key questions I would continue to ask, for now there seems to be nothing standing in the way of the secular bull market in gold running further.

Source: Gold Market Chartbook - January 2025

5. Silver Flows:  Silver has also broken out, but somewhat less convincing vs gold. One thing in common is the overarching uptrend, but also recently: ETF outflows. As noted, retail appear to be relatively lukewarm on precious metals, perhaps too busy chasing the prospect of larger faster gains in crypto, or performance-chasing in tech.

Source:  Topdown Charts Research Services

6. Silver vs Gold:  One distinction between silver and gold is that silver has more industrial applications, so it sort of behaves like part precious metal and part industrial metal. In thinking about silver vs gold, silver looks to be undervalued vs gold, and my expectation for the growth outlook is for a reacceleration in global industrial production this year — base metals and growth-sensitive commodities are likely to benefit significantly from that, and thus silver should see some macro tailwinds.

Source: 

7. Silver ETF Allocations:  Lastly on silver, despite the strong run in prices, relative value, and prospective macro tailwinds — ETF investors show very little enthusiasm. Implied portfolio allocations are right at the bottom end of the historical range. I would call that a contrarian signal.

Source: 

8. Gold Miners Left Behind:  Unlike the gold price, gold mining stocks have basically been in a 5-year trading range. They have defied the strong trend in the rest of the stockmarket and in the gold price. The relative performance of gold miners vs the index diverged from the gold price back in 2021 and never caught back up. But with growth stocks looking increasingly overvalued and at risk in an environment of rising (geo)political risk, and gold prices going from strength to strength I think it’s fair to expect some catch-up for miners.

Source: 

9. Gold Miner Valuations:  If we look at the valuation side of things, gold miners are trading at the steepest relative value discount since the peak of the dot com bubble. In that respect again, I think this sector can serve as an alternative hedge or diversifier against a tech-driven stockmarket downturn, while also benefitting should precious metal prices run further. So it’s an interesting combination of defensive features with upside potential.

Source:  Weekly Macro Themes Report (Gold Miners Topic no. 5)

10. Gold Miners — Investor Allocations:  Lastly, echoing the themes for gold and silver, as you might expect given the lackluster performance to date for miners, retail ETF allocations are running near record lows. So it’s a case of unloved, undervalued, and underappreciated upside potential. It’s probably not going to be for everyone, but definitely food for thought for contrarians!

Source:  [n.b. Reminder to Subscribe!]

I hope you enjoyed this rare off-topic ChartStorm and found it useful/informative. Please be sure to share if you think others will find it interesting, and if you haven’t subscribed as a paid supporter yet I would encourage you to consider upgrading and would appreciate your business :-)

p.s. if there are any other topics of particular interest you’d like to see covered in a future edition please let me know in the comments.

Best regards,
Callum Thomas
Founder & Editor of The Weekly ChartStorm

Thanks for following, I appreciate your interest!

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks and stats, commodities, regions, and various other issues of interest.

And uniquely, this is my first foray into collaborations, as I welcome the contributions of in this note.

Learnings and conclusions from this session:

• China is exhibiting all the classic features of a New Bull Market.

  • Pessimism is entrenched.

  • Monthly and Weekly trend signals turned up in Q1 2024.

  • Valuations are extremely depressed.

  • Breadth has been extremely strong.

  • Macro and Policy are finally falling into place.

Overall, there is definitely a change in the winds here, I know this piece will be greeted with ample skepticism given the prevailing sentiment and news flow on China, but I urge you to set aside your biases and focus on the charts.

1. Failed Breakdowns to Bullish Breakouts:  Both Chinese A-shares (domestic listed) and the MSCI China Index (includes domestic and foreign listings) have rebounded after failed breakdowns to lower support levels, and are in the process of a major turnaround (new bull market type of stuff in the works here).

Source:  Weekly Macro Themes Report - China Property & Stocks in Focus

2. Pessimism is Entrenched: “Bull Markets are born on pessimism.” — folk are still shorting China, believing that it’s “uninvestable” and that a crisis is just around the corner …any day now. And who can blame them with the wall of negative press flow and opinion making that has prevailed over previous years. Could the next meme-stock short-squeeze come in the most unexpected of places?

Source:  Something Incredible is Happening in China

3. History Rhymes in Markets: Monthly and Weekly trend signals turned up in Q1 2024 for the Hang Seng Index — here’s a comparison of prior Major Bull Markets in China’s HSI Index, suggesting much higher targets over the next 12-24 months.

Source: Something Incredible is Happening in China

4. Hi High HSI:  Notably, a repeat of those historical patterns would target the HSI Index at 23-25k BEFORE year-end 2024. That would be an *additional* +24% to +35% upside from current levels.

This would make China probably one of the best performing markets in the world this year, by far. No one thinks these targets are remotely possible. And yet, history shows this is precisely what happened when these sort of technical developments showed up in the past (and a reminder: price always moves faster than narratives and stories).

And this is at the INDEX level… imagine what the leading Stocks could gain in this scenario. Some could advance multiples more.

Source: by

5. Hedge Fund Happening:  Just this week David Tepper's Appaloosa reported BABA as its largest position (12% of the portfolio). He was loading up in Q1. In total, nearly 25% of Tepper’s $6.7B disclosed positions are now in Chinese Stocks / ETFs.

Source:  The Winds are Changing

6. Burry on Board:  Not to be outdone, Michael Burry has 22% of his portfolio — in just three Chinese Stocks: JD, BABA and BIDU. This is a big deal, and a sea change in sentiment among the hedge fund community.

Source:  The Winds are Changing

7. China Risk Premium:  And the timing is spot-on — news-based policy uncertainty has recently peaked and pushed lower *along with the Equity Risk Premium* (which goes some way to acknowledging that all the negative press and sentiment are already in the price given the elevated risk premium on offer).

Source: 

8. Cheap China:  China A-Shares remain cheap vs global stocks and especially vs US equities, and hey; maybe it doesn’t close the gap, but even meeting half-way would be significant upside re-rating.

It also highlights the on/off nature of this market, which now appears to be switched into the “ON” position.

Source:   Weekly Macro Themes Report - China Property & Stocks in Focus

9. Policy and Property:  I have been expecting more monetary easing from China for some time, and they have stepped up efforts recently with cuts to long-term policy rates and bank reserve requirements… but just yesterday the government announced a string of measures to stem record property price falls and turnaround an entrenched property market downturn.

China has announced: -25bp cut to housing fund loans, removed the floor on mortgage rates, slashed the minimum deposit for first home buyers to the lowest level since the late-90’s (15%), and a program has been launched for local governments to conduct asset purchases to help rundown excess housing inventories.

This is quite bullish.

These measures and the possibility of perhaps some further incremental monetary policy easing will likely put a floor under house prices, remove some of the associated downside risks, and bolster sentiment for Chinese consumers and stockmarket, but also emerging markets and commodities.

Source:    Weekly Macro Themes Report - China Property & Stocks in Focus

10. Meanwhile in Emerging Markets:  Emerging market equities in general have been picking up steam – as previously noted, EM equities are breaking out, are above their upward sloping 200-day moving average, and with strong breadth across countries and continuation of their long-term uptrend in local currency terms. China is obviously a big part of this, but it’s not the only part, and either way what’s good for EM is good for China and vice versa.

Source: 

Thanks for reading, I appreciate your support! Please feel welcome to share this with friends and colleagues.

Hopefully you found this collaboration piece useful and interesting.

Thanks to for their contributions

— please see his original post on Chinese stocks for more details on his analysis, examples of previous bullish breakouts in energy stocks to illustrate what is potentially in the works here, and some of his analysis and charts on single stock names (useful for those of you who want stock picks vs index views!)

Macro Charts

Something Incredible is Happening in China

Read more

2 years ago · 48 likes · 2 comments · MacroCharts

Thanks and best regards,
Callum Thomas
Founder & Editor of The Weekly ChartStorm + Topdown Charts

Twitter: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, stats, commodities, regions, and various other issues of interest.

Learnings and conclusions from this session:

• The May-Oct period tends to see lower, more volatile returns.

• However only bear markets tend to see *negative* returns.

• The Nov-Apr period tends to see higher returns.

• The Sell-in-May effect is cyclical/changing.

• The return spread is shrinking over time.

Overall, there’s a bunch of nuance and caveats to the worn-out old saying of “Sell-in-May” (which is by the way a shortened version of “Sell in May and go away, come back on St. Leger's Day”). Technically markets do indeed fare worse during this May-Oct period, but there are exceptions to the rule, and context is key. I always say when it comes to seasonality you ought to look at it last… as conviction building and confirming evidence to an existing robust thesis — not as the main thesis itself.

1. Sell in May?  First of all, what even is this “sell in May” thing? As the seasonality chart below shows, May-Oct tends to be messy in markets — returns tend to be choppier, smaller, and volatility tends to drift higher.

So it does seem to be a worse time of the year for markets all else equal.

Source: 

2. All Else is NOT Equal:  Look at this chart from a post I did on conditional seasonality (how does seasonality look like in bull markets vs bear markets).

It turns out that this sell-in-May effect seems to be a bear market thing (by contrast, the green line keeps going up during the May-Oct period, albeit maybe a little more choppier than the Nov-April period).

The takeaway being: only sell in May if it’s a bear market.

Source:  Chart of the Week - Bear Market Seasonality

3. But How will I know?  The chart above uses 100% perfect hindsight to know whether it was a bull/bear market (did the market go up or down?), we don’t have that.

What we do have though is the 200-day moving average as a proxy (price above vs below), and it does a decent job (and if anything, reiterates the point that Sell-in-May is definitely a thing during bear markets).

Source:  Chart of the Week - Bear Market Seasonality

4. But what about Probabilities?  Is a question you should ask — because seasonality analysis like the above is just an average, and we know that averages can get skewed around …and probability (at least historical realized probability) is also important to know.

During bull markets the probability of a positive return was lower during the May-Oct months than the Nov-Apr months. Bear markets saw much lower probability of positive returns during May-Oct months (but also bad Jan/Feb).

5. What about for the entire May-Oct vs Apr-Nov periods?  The Sell-in-May (SIM) period of May-Oct consistently underperforms the Buy-in-Nov [BIN] period… but only has a negative historical average return during bear markets

Again the proxy for bear market is above/below 200-day moving average — so in this case the analysis asks “was the index above or below its 200-day average at the end of April?” for the Sell-in-May measurements.

What’s interesting is that even during bear markets, while average returns were lower during the SIM period, the probability of a negative return was only ~45%. Also interesting is that the BIN period during bear markets outperformed the SIM period during bull markets. So SIM beats BIN, but SIM only really sucks during bear markets. Maybe we should call it Sleep-in-May (snooze in summer?) !!

Another thing to think about is if you were going to go try and time the market using the Sell-in-May effect (i.e. by going to cash during May-Oct, going fully invested Nov-Apr), with a historical average return of 2% during bull markets in the May-Oct period — you would need to be earning more than 2% in cash during the time you were 100% cash to avoid underperforming over time vs just Buy-and-Hold (cash rates would need to be and stay high: at least 4% when you went to cash… and this is ignoring dividends!).

ALSO: note that even in the best period in bull markets, it’s still only 75% positive… so 1/4 times the Nov-Apr period turned in negative returns even during bull markets.

6. Does the effect change over time?  I’m glad you asked, because it definitely does!

It seems to be cyclical, also the gap between the two periods is shrinking over time.

7. OK, any reasons or any other color? Well, economic data surprises tend to be worse in the May-Oct period, and better in Apr-Nov… and investor sentiment also tends to follow a similar pattern.

8. Other Assets?  Defensive assets tend to do better in the May-Oct period (as you might suspect, given the worse sentiment/data/stockmarket returns during that time).

To clarify we are looking at the seasonal pattern of defensive stocks relative performance, and the spread of seasonality patterns for treasuries/gold vs stocks/VIX/credit spreads.

9. Even credit spreads?  Yep, credit spreads tend to widen over the May-Oct period (and yes, even if you exclude 2008).

10. What else? The US Dollar (DXY) tends to weaken, and WTI Crude Oil trends higher during the murky May-Oct period.

Source: 

Thanks for following, I appreciate your interest!

Looking for further insights? Check out my work at Topdown Charts

As a holiday treat I have decided to provide the full report for free to my followers and supporters. See: DOWNLOAD LINK

2023 End of Year Special

This report takes a different format than the usual weekly slide deck: reviewing the key charts of 2023, before going through the ones to watch for 2024.

Specifically, the contents:

• Charts That Worked

• Charts That Didn't Work

• My Favorite Charts of 2023

• Charts to Watch in 2024

• Honorable Mentions

• People's Choice Charts

I hope you enjoy this selection of charts which I have meticulously handpicked from reviewing all of my institutional research reports of the past year.  As an exercise in reflection, this has been extremely useful as I continue to hone my craft and refine the reports (…not to mention giving me a number of ideas to work on in the year ahead!).

Click Here to Download the Report

Other than that, thank you kindly for your support this year.

Wishing you a healthy, happy, and profitable 2024 !!

Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts (& the Weekly ChartStorm!)

Follow me on Twitter
Connect on LinkedIn

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the “Off-Topic ChartStorm” is a semi-regular focus piece with topics spanning macro, markets, stocks, bonds, commodities, regions, and various other issues of interest.

Learnings and conclusions from this session:

• The recent drawdown in treasuries is the worse in recorded history, and even almost on par with the drawdowns in Bitcoin(!)

• Corporate bonds have also taken a beating, but mostly due to the effect of rising interest rates as credit spreads slumber.

• The growing consensus among fund managers and strategists is that longer-term bond yields will be lower next year.

• Macro (PMIs) and intermarket indicators (copper/gold) affirm that view.

• Rising interest rates are presenting headwinds to real estate and risk assets, prompting the question whether the cure for higher rates will be: higher rates...

Overall, there’s an ongoing tension between the growing size of drawdowns vs the growing expectations that the bottom is here or near for bonds …vs the relentless momentum on display. There’s also the macro tension between growth and inflation, and within the economy the tension between higher borrowing costs vs higher nominal growth, lower household leverage and greater incidence of fixed rate borrowing. These tensions are understandable but unsustainable — and that which is unsustainable cannot be sustained. Personally, I agree with the folk in charts 5 & 6.

1. Momentum:  We are living through most persistent rise in yields of the past half century, and it’s probably going to have to take some sort of exogenous shock or crisis to derail this kind of momentum.

Source:  Willie Delwiche

2. The Worst (nominal) Drawdown in History:  For 10-year treasuries this has been the worst drawdown in history in nominal terms (albeit not quite so in real terms as the dual inflation shocks of the 70’s set a high (low?) bar).

Source: @MebFaber

3. Treasuries vs Bitcoin: Longer-term treasuries drawdown (price only — and on that note, unlike Bitcoin, treasuries pay guaranteed/credit-risk-free interest coupons to the holder, and in total return terms are “only” down -47% (vs -51% price-only)). But the key point of interest in this chart is the fact that long-term treasuries are facing drawdowns similar in scale to that of Bitcoin! I wonder if that will change perceptions around the legitimacy of the various asset classes…

Source: @DylanLeClair_

4. What About Corporate Bonds? Investment Grade corporate bonds have also seen significant drawdowns, but this has primarily been a duration thing — i.e. a consequence of rising interest rates pushing down the price of bonds. The credit side of things has been completely contained so far in the scheme of things (compare and contrast to 2020 and 2008/09 — where the losses where driven by credit risk; large spikes in credit spreads).

Source:  (chart originally appeared in 2022 end-of-year report)

5. ZEW crew still Expecting Lower Bond Yields:  As highlighted in the previous Bond Chart Storm (chart updated to latest below), the ZEW survey respondents are increasingly pounding the table on their call that US longer term rates are headed lower. They have historically had a decent track record, so there is an element of “wisdom of the crowds” going on here, but equally it is an increasingly consensus viewpoint…

Source:  (updated chart from the previous Bond ChartStorm)

6. Everyone Knows Bond Yields are Going Lower:  Exhibit 2 — the majority of fund managers surveyed expect bond yields to be lower in 12-month’s time. Of course that doesn’t preclude the possibility that “lower” may mean only slightly lower, and/or that bond yields could head higher in the interim.

Further, to carry on the point from the previous chart, the crowd can and does get it right from time to time — sometimes the consensus is the consensus because it’s right and obvious. But there have been plenty of times where the consensus gets it dead wrong, and the anchoring of the multi-decade bond bull market of 1980-2020 no doubt influences the expectation for lower yields.

Source:  Notes Post

7. Intermarket Correlation — Spurious or Curious?  One of the best intermarket indicators for US 10-year bond yields over the previous decade has been the copper vs gold ratio. The reason is that copper is basically a proxy for global economic activity, while gold a proxy for risk sentiment. So in a downturn gold goes up, copper goes down, the ratio of copper to gold goes down and so do bond yields (which are likewise determined by the economic pulse and risk sentiment). But that correlation seems to be suffering from long covid. The Pandemic supply + stimulus shocks may have broken the correlation by anchoring inflation expectations higher.

Source:  @murphycharts

8. Broken Correlations or Delayed Reactions?  Another example of an infirm correlation is the US 10-year yield vs developed market manufacturing PMIs. This and the previous chart arguably give a certain element of evidence to suggest that bond yields head lower, or at least that they will head lower in the event of a recession.

It is interesting to reflect on the period immediately after the pandemic crash, where it took bond yields quite a while to catch-up to the PMIs (maybe we can at least partly blame this on QE?). And it does raise a question as to whether this is simply the “Wile E. Coyote Effect” — and that bond yields will drop down to meet the PMIs.

Confounding factors though include the influence of QT, higher government debt loads (concerns around fiscal sustainability), ghosts of inflation, and maybe even inventory cycle and base effects messing up the PMI signal.

Source: 

9. Search For Yield —> Yield Found:  Those who were around in the pre-pandemic years, especially 2014-17, will remember there was the “Search For Yield” theme — where cash rates were basically zero, and bond yields bouncing along the bottom. Investors were searching for yield by reaching out to longer duration bonds or taking on greater credit (or equity) risk. But now? Cash provides greater yield than many of the traditional yield oriented assets and without any of the same credit/equity/interest rate risk. And hence now the level of interest rates is a headwind vs previous tailwind to income assets.

Source:  @JeffWeniger

10. The Best Cure for Higher Rates = Higher Rates?  This brings us to the final chart of this session, and an open question — will the cure for higher interest rates be …higher interest rates? Can a world where valuations are still largely priced to perfection across real estate and equity markets withstand the higher risk-free hurdle rates? (or will people adjust? will a new normal higher nominal growth rate offset the higher for longer level of interest rates? or is this all, what we’ve talked about today, what you should expect to see with the long and variable lags of monetary tightening?)

Source:  Chart Of The Week - US Housing Market

Thanks for following, I appreciate your interest!

Looking for further insights? Check out my work at Topdown Charts

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the “Off-Topic ChartStorm” is a semi-regular focus piece with topics spanning macro, markets, stocks, bonds, commodities, regions, and various other issues of interest.

Learnings and conclusions from this session:

• The 2020-23 drawdown in treasuries is now worse than the drawdown in stocks during the 2008 financial crisis.

• Rising real yields and JGB changes have been a key driver of the recent push higher in US treasury yields.

• Lower demand from China/Fed have contributed to the bond bear.

• Bond bear markets usually only end when a crisis occurs (bond bulls need to believe a crisis/recession and/or Fed pivot is on the way).

• Bond yields are back to their 230-year average.

Overall, there’s plenty of reasons to explain in hindsight the recent push higher in yields, and currently the momentum is clearly one-way. Sentiment is also becoming increasingly consensus bearish on bonds and in some cases flamboyantly bearish (e.g. the 13% rant). The price adjustment has already been substantial (catastrophic), and bonds are looking cheap. So at some point it will make massive sense to buy bonds. But as highlighted in this week’s charts (and the previous bond chart-storm), you need to see: better technicals, change in macro tension from inflation risk to growth risk (crisis/recession), and change in Fed policy. Until then bond market beatings will continue until morale improves.

1. Deep Drawdown: A “wow-chart” to kick-off this session — turns out long-term treasuries are suffering a deeper peak-to-trough drawdown than what happened to stocks during the great financial crisis. I would note that this is price only, and the total return is slightly less bad (albeit only by 5 ppts). But still, simply catastrophic.

Source:  @JackFarley96

2. Broken Mental Models: The playbook of the past few decades during the secular bull market in bonds has been to just fade it when yields push higher. This trend has clearly come to an end.

n.b. just in case we might have any new people here, I do want to emphasize that elementary bond/finance math means if bond yields go up, bond price goes down (so moves higher in bond yields = bearish for bond prices).

Source:  @TheKingCourt

3. Getting REAL:  A big part of the most recent surge in bond yields (more than 150bps up off the April low) has been the breakout in real yields (inflation expectations are more or less unchanged). From a technical standpoint, this chart shows what looks like a solid breakout, and from a macro perspective… if this thing keeps going it is going to do some damage as real yields deeply effect the opportunity cost calculus of holding various other assets like gold and tech stocks, not to mention real world economic decisions.

Source:  @topdowncharts

4. Turning Japanese: It’s not just the US, Japanese yields are also surging. I pick on Japan in particular with this chart as arguably the BOJ shift in policy has been a key catalyst to the global push higher in bond yields. And interestingly enough, given the BOJ changed its ceiling price for JGB 10yr yields to 1%, there is still upside room to move. I would also note, as I shared in a note at with clients the other day, Japan’s nominal GDP has broken out from basically a 2-decade range (driven yes by inflation, but also stimulus and the dividends from previous structural reforms) — in other words, this is a real move with real upside risk to global sovereign yields.

Source:  Topdown Charts

5. Beijing Bond Buy Bye Bye:  While it’s hard to precisely disentangle in this chart what might be outright selling vs just the downward shunt of market movements in mark-to-market valuations of US treasury holdings, one thing is clear… they are not buying, and certainly not the same relentless source of buying that they used to be. So the absence of foreign demand from buyers like China is one of a many factors at play in the rise and rise of US treasury yields.

Source:  @TaviCosta

6. Fed Out:  The other previous notable buyer of treasuries, the Fed, is also not only not buying, but outright running down their holdings of treasuries. Quantitative tightening is a headwind to bonds on the demand side, while fiscal profligacy means supply is as high as ever… ECON 101? (Demand down, Supply up = Price ____)

Source: @AlfredoJPinel

7. Out With Bang:  Bond bear markets rarely end with a whimper, and most often with a bang. The bond market intimately effects all facets of macro and markets, so if bond yields go high enough fast enough, sooner or later something somewhere breaks. We saw this earlier this year with the regional bank blowup, and that crisis was quickly swept under the rug by the Fed… but what if something happens that is harder to fix? Basically, bond bulls beg for blow-up.

Source:  @bcaresearch via @MichaelAArouet

8. It ain’t Over ‘til the Fed Says it’s Over:  Bond bear markets are logically usually driven by Fed hiking (because cash rates directly and indirectly drive bond prices). Much in line with the previous chart, for the bond pain to end, the Fed needs to pause/pivot on rate hikes. Again, to be clear, to be bullish bonds — you need to expect some combination of crisis, recession, fed pivot to QE/rate cuts.

Source: @FrancoisTrahan

9. Expecting The End: Speaking of any potential eventual return lower in yields and end to bond bear market, the ZEW survey of economists has been increasingly shifting to the bond bull side… i.e. this group of people expect US long-term interest rates to head lower. over the past few decades, they have as a group had a reasonable track record — when the blue line turns sharply lower, the black line typically follows. At times this group have been very early e.g. the 2006-08 period, but never outright wrong. Will it be different this time?

Source:  Topdown Charts

10. Maybe it’s Maybelline, Maybe it’s Mean Reversion:  Last one, and maybe one for the higher for longer crew — maybe it’s all just been one big reversion to the LOOONG-term mean. Maybe the past couple of decades were actually the anomaly, and maybe the current price action is actually not abnormal but a return to normal.

Maybe we should rebrand “higher for longer” to “average for longer”…………

Source:  @UrbanKaoboy

Thanks for following, I appreciate your interest!

Looking for further insights? Check out my work at Topdown Charts

In my original post I shared what I thought would be the 10 most important charts to watch for global multi-asset investors in the year ahead (and beyond). In this article I have updated those 10 charts, and provided some updated comments on the outlook as I see it + reflections on what has/not worked so far this year.

[Note: I have included the original comments from back at the start of the year, so you can quickly compare what I'm thinking now vs what I said back then!]

1. Global Recession 2023:  This one’s interesting — at the start of the year basically every leading indicator was pointing to recession. But it seems a variety of confounding factors ultimately canceled out those signals e.g. drop in commodity prices (cost pressures alleviated), surge in factory building/capex, consumer cash coffers, fixed rates offering insulation from rate hikes, and perhaps some relief effects on economic confidence following post-pandemic normalization and the passing of the shock-effect of the multiple crises of 2022.

So… all-clear then? Well, since the start of the year a few leading indicators have gotten better/less-worse (namely cost-related and short-term demand related), but anything monetary related has gotten much, much worse.

Maybe the whole notion of a recession has been deleted — maybe it is different this time, or maybe the “monetary wall” has been kicked down the road into 2024.

“One of the most interesting pieces of work I undertook in 2022 was to perform a sort of meta-analysis on all the leading indicators I’ve developed over the years.  The key takeaway from that is whether you group leading indicators by type/factor, geography, or forecast window — they are all unanimous in pointing to a sharp downturn heading into early-2023. In many ways it’s a coming full circle of the massive stimulus that was unleashed in 2020. Or as I call it: “a strange but familiar cycle”.”

2. Double Trouble: A key reason to push back on the no-landing/soft-landing case would be the double-trouble from surging rates and tightening credit conditions. But again, you might argue that all this does is shift up the hurdle rate for new investment — which may not be an issue in a world of high nominal growth and tight capacity, and may simply not even effect those who already locked-in low rates and shored-up their cash/funding position during the monetary excesses of the 2020/21 period.

Or maybe just the long and variable lags of monetary tightening. Recession 2024?

“I include this one because it goes to show how financing conditions have tightened — banks are becoming more stringent and stingy in their lending decisions, and the interest rate on those loans is now a lot higher.  So it's a situation of even if you can get a loan, you might not be able to afford it! If we do get a recession this year it could be the last straw for some of the more unsustainable business models that arose in the world of zero interest rates, and credit stress could become a key issue.”

3. Property At Risk:  Even housing has managed to whistle past the graveyard of doomsday calls despite higher cash rates brushing up against record high valuations.

To reflect, maybe it’s a higher incidence of fixed rates (but even in countries with shorter fixed rate periods and more floaters, the initial shock appears to have been absorbed and put behind us). Maybe it’s just that in a world where labor markets are still tight (for now) the high nominal wage growth effect makes people feel ok.

In my mind to really wreck a housing market you need a shock in borrowing costs, a shock to servicing ability (unemployment), or some combination thereof. The fact that rates did at least have an initial peak, and the rise in rates happened over a long enough period to reduce or fade out the shock effect… along with ample availability of jobs and wage hikes, means this one remains a risk rather than a reality for now. But I will say this, if rates really do go higher for longer, those valuations will need to adjust either by rents/incomes surging or price plunging.

“Housing market valuations reached a record high across developed markets last year.  That’s going to be a problem if rates stay high or head higher (and if real incomes continue to squeeze).  Key risk to monitor.”

4. Unflation:  Commodities did most of the heavy lifting on disinflation to date (and that story is now changing — I see a new cyclical bull emerging there), meanwhile on the demand side there was an element of demand dampening, but in lieu of recession — there has been no real large scale demand destruction yet. And hence, capacity utilization (this chart shows the combined view of industrial and labor market capacity) remains fairly tight.

And this is where we get to the tricky bit for no-landers: “congratulations — you avoided recession! Your prize is… more inflation.”

Until the black line in that chart drops, and especially with the resurgence in commodities, inflation is going to be an issue. Hence, again, watch out for the monetary wall — it’s still there, and will get worse if/when inflation resurges. In other words, you can win for a while, but if you win too much, you lose.

“The downward drift in commodity prices is already going to dampen headline inflation, but a recession will seal the deal (the fastest way to free up tight capacity is demand destruction: central banks understand this).”

5. Bond Yield Go Down:  Well, no — at least not yet. Higher for longer appears to be in play, and will be the reality if inflation resurgence risk rings true.

That said, I would note that while I have some models pointing to higher yields (e.g. cash rates, inflation), others are pointing to (significant) downside for yields (PMIs, growth risks). I think that will be resolved in a matter of timing.

“Weaker growth, credit stress, housing market issues, lower inflation… it’s all a recipe for lower bond yields.  If we take my macro models literally then US 10-year bond yields could head back below 2.0% (even as low as 1%?!) by the middle of this year.  Sure, there’s a lot of if’s and but’s around that, but an interesting forecast being suggested by the data, and it fits with the macro (and valuations).”

6. Bonds Beat Stocks:  Lower inflation, recession avoided, AI dreams, FOMO, goldilocks and the crowded bears — all helped stocks power ahead this year and leave bonds behind. But in terms of the outlook from here, this is probably the best illustration of the so-called “monetary wall” I keep going on about.

And at this point it’s time for an inspirational quote: "Just because something hasn't happened yet, doesn't mean it won't"

As things stand now, bonds are cheap, stocks are expensive, relative value is very stretched for stocks vs bonds. Sentiment and positioning are overcooked on stocks, undercooked on bonds. Macro remains a mystery for now, but the leading indicators are still sounding the alarm. Evidence based investment thinkers will recognize the risks vs opportunities here…

“On valuations, treasuries are cheap, and stocks are not.  By itself that means bonds have the advantage, but bonds also disproportionately benefit in the event that global recession does indeed set in.  The leading indicator affirms this notion in the chart below.”

7. Monetary Risk to Macro Risk:  So about that recession-avoided thing… the soft data globally remains weak (PMIs, business confidence, consumer confidence), and hard data growth rates continue to lose momentum (retail sales, exports, industrial production, jobs growth). If I didn’t know any better I would have looked at this chart and told you a global recession was on the cards.

My baseline mental model on this is that for the stock market, recessionary conditions don’t matter if valuations get cheap, sentiment gets washed out, the data gets so bad its good, and monetary policy turns to stimulus… the issue we face is stocks are not cheap, sentiment is back to bull, macro data is mixed, and central bankers are still aggressively tightening. Maybe YTD 2023 was all just one big bull relief rally before the next phase.

“Arguably much of the pain in equities last year was down to the rates/inflation/monetary shock. Recession risk means slowing growth is set to become the bigger concern this year.”

8. Tech Unwind: So we have definitely seen a reset here. But I will note on the valuation side of things, the unwinding has been fully unwound, and tech stocks are now back to expensive again (extreme expensive — vs history, vs the rest of the market, vs global tech stocks, and vs bonds). A mix of recession-avoided and AI hype along with the relentless flows from passive and global investors has helped big tech reclaim the highs and end the bear market. Not dot com. Something else…

“Definitely different from the dot com bubble, but definitely also some excesses that needed to be unwound.  My sense is we are still just over midway through this process, and ultimately: growth stocks can’t outgrow the macro.”

9. EM Stocks & Bonds:  Remain cheap. The puzzle pieces seem to be falling into place here... EM central banks were first to pivot to tightening, and as a group are now pivoting to easing, that’s going to help things along for EM stocks — and especially EM bonds. There are still some risks e.g. if US dollar and/or treasury yields push materially higher. But one other aspect to this space is that sentiment has flipped quite materially… bullish EM was very consensus at the start of the year, and now few if any are bullish, and indeed most have gone full-doom on China.

“When it comes to emerging markets, the equities are looking somewhat cheap, but what’s really interesting is where the bonds got to.  There is what appears to be a major once-in-a-decade value setup for emerging market sovereign bonds (I am talking at the asset class level, equal-weighted). I think this could be one of those moments in time for asset allocation, but a few things do need to go right for this one to work.”

10. China Policy Map:  Key to EM, and well — just about all of global macro/markets, is China.. and specifically China stimulus (or lack thereof). To take stock on China macro: the covid reopening bounce has been and *gone*, the property market remains mired in a deep downturn, inflation has turned to deflation, and add on a troubled labor market and recessionary conditions in global trade… basically you get the classic case for monetary easing and any other central bank around the world would be slashing rates.

Needless to say: it’s complicated. The desire to avoid the perceived mistakes of the past excess stimulus programs, to restructure the economy, to avoid various other aspects like FX weakness, and really who knows what else they are thinking… all raise the odds that what could be a key bullish catalyst (stimulus) becomes a major policy mistake and downside risk (not enough stimulus, and/or too little too late). Add on the murky geopolitical ructions, and China presents 2-sided tail risk to the overall global-macro-market calculus.

Maybe they’re waiting on the Fed to finish hiking, maybe a global downturn will be the trigger to easing. The chart says expect rate cuts, and so I would still say odds are on for more stimulus. Let’s see.

“With China transitioning away from zero covid to zero cares about covid, the door is opening wider and wider for more forceful stimulus.  The property market downturn, global growth risks, and clear disinflation trend makes for a classic and compelling case for monetary easing. Amid an otherwise gloomy outlook for 2023, this could be a key bright spot for macro and markets if they do step up stimulus. So keep an eye on China macro.”

Summary and Key Takeaways:
-Despite the twists and turns, so far no recession in 2023 (but still many warning signs)
-The “Monetary Wall” has grown larger and more imposing
-Credit tightening and housing market risks continue to lurk in the background
-Recession 2024? (leading indicators say yes…)
-Inflation has cooled off, but the lack of recession means resurgence risk is real
-Bond yields defied the macro models, but followed the inflation models
-Inflation resurgence risk means higher for longer for bond yields is on the table
-Stocks enjoyed a multi-pronged relief rally
-Yet stocks remain expensive vs bonds cheap, and overcooked on sentiment
-Bonds better placed vs stocks, especially if/when recession eventually comes
-Emerging market stocks and bonds are cheap, set to benefit from EM pivot
-China mystifies against a clear and compelling case for larger stimulus
-Add on geopolitics; China remains an important source of 2-way tail risks

Overall: I would repeat my quip of this being a “strange but familiar cycle”, but perhaps more emphasis on the strange aspect as confounding factors abound. A lot of the usual macro/asset allocation sign posts that we usually follow continue to work (albeit with some nuance, and more variable leads/lags) and are still pointing the way in terms of next steps. From an asset allocation standpoint the evidence tells me to be overweight defense (cash and government bonds… and commodities*) vs underweight growth assets (equities, real estate, credit). After nailing nearly all my calls in 2022 and 2021, so far 2023 has been relatively more humbling, and a prompt to refine and reflect ahead of what may be a very interesting 2024.

—

Thanks for reading! Thoughts & Questions welcome in the comment section ↓

n.b. these charts were first featured in my 2022 End of Year Special Report — click through for the full report (free download)

Best regards,

Callum Thomas
Head of Research and Founder of Topdown Charts

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Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, bonds, commodities, regions, and various other issues of interest.

Learnings and conclusions from this session:

• On the technicals, bond yields are caught between short-term support and resistance, but the upward momentum is fairly clear and compelling.

• The PMIs however point to (much) lower bond yields ahead.

• Yet the long-term inflation model says higher for longer.

• History tells us treasuries outperform in recession and bond bulls need to wait for the Fed to pause and/or ideally pivot to rate cuts.

• Meanwhile, stocks look stretched vs bonds (+at risk if yields push higher).

Overall, there’s definitely a case to be made for some further upside in bond yields, but equally building evidence for the downside case. I would say it’s just a matter of timing, and in that respect we need to listen to price while keeping macro in mind.

1. Bond Yield Technicals:  I thought this one would be a good starter as it lays out the tactical situation for US 10-year bond yields. The first point to note is actually the steady uptrend that began off support from around May this year (which also involved it breaking above its 50-day moving average, and flawlessly maintaining that textbook breakout ever since). But of interest with the annotations in the chart is the recent initial rejection of resistance, and bounce off short-term support. These are important trigger levels in my view, if we break that upper resistance level then we go to new highs in bond yields, while a break of support (and the 50dma) would place a move lower in yields on the table. Given the strong upward momentum in yields, the odds would favor a break higher.

Source:  @DJwrath

2. Treasury Troubles:  In real (CPI adjusted) total return terms, long-term US treasuries have seen a lost decade, and a catastrophic -50% drawdown off the peak in mid-2020 (p.s. for anyone who’s new to bonds remember: yields up = price down). Essentially this is what happens when an otherwise safe and conservative asset meets an inflation (+ monetary policy) shock.

Source:  Chart Of The Day - Treasuries Troubles

3. Treasury Troubles in Context:  Not only has it been a large drawdown, it’s been a drawn-out draw-down, and as things currently stand the YTD negative returns put treasuries on track to chalk up their 3rd year in a row of negative returns — for the first time in recorded history.

Source:  @KobeissiLetter

4. When Buy Dip? But it is important to note that the year is not out yet, we’ve got 4 months for treasuries to make a comeback, and one reason for hope would be this chart here. It shows the recessionary declines in the developed market manufacturing PMIs pointing to (if we were to take the chart literally) US 10-year yields falling towards 1% — something that I think at this juncture most would find unbelievable.

Source: 

5. When Fed Pause/Pivot:  But even as some of the macro indicators say bonds look attractive (i.e. expecting lower yields — which again for the newbies, would mean higher bond prices), history tells us bond bulls should be patient and wait for Fed pause/pivot. And well, I would say unless we get another inflation shock or resurgence or some kind of upside macro surprise, the Fed is probably darn near close to pausing at least.

Source:  @AndreasSteno

6. Cash Rates vs Bond Yields — Global Perspective:  Indeed, it’s not just the Fed, if we look across developed markets through time, for bonds to sustainably perform and yields to move lower, you really do need to see cash rates peak and for central bankers to shift into rate cutting mode (which, by the way, EM central banks are already in the early process of doing so, after being first to pivot to hiking back in 2021).

Source:  Chart of the Week - Bond Yields vs Cash Rates

7. Recession Realities:  But one thing I have to keep coming back to is the tyranny of the stats — historically treasuries put in their best performance, and stock-beating performance during recessions. I would note, you don’t need a recession for bonds to do ok, but you do need a recession for bonds to do spectacular (hence why bonds are often referred to as diversifying assets… at least outside of inflationary shocks!).

Source:  @callieabost

8. Higher For Longer Tho?  This chart presents the cautionary — the long-term rate of inflation model is still suggesting some upside for US 10-year yields. I would note that the indicator does appear to be peaking, but higher for longer can still be true if inflation just maintains (vs accelerates). And with that big break vs long-term downtrend, it’s easy to see why a lot of people are still bearish on bonds.

Source:  Chart of the Week - Bond Yields Higher For Longer?

9. How Does this tie-in to Stocks?  One key implication of rising yields has been shrinking equity risk premiums [ERP] (i.e. the expected premium required over and above the risk free alternative to compensate for taking on equity risk). As a rule of thumb, stocks are generally a good buy when the ERP is high (especially when it spikes to record or multi-year highs), where as stocks are generally a good bye when the ERP is low. So higher yields put stocks at risk when the ERP shrinks, and make it relatively more attractive to own bonds vs stocks.

Source:  @MikeZaccardi

10. Stocks vs Bonds: And with such dismal performance by bonds, and a storming run in stocks off the October 2022 lows, the stocks vs bonds ratio has broken out to new highs and indeed looks overbought on a number of metrics. But again, the relative value situation increasingly favors bonds and disfavors stocks.

Ultimately though, and again, I did the math — historically it is far more likely for bonds to outperform stocks when stocks are falling (vs rising), and back to that recession comment (chart 7)… realistically for bonds to really outperform vs stocks you need a recession and/or bear market in stocks. At the moment all we’ve got is a bear market in bonds, a bull market in stocks, and a no-landing/non-recessionary-recession (for now).

Source:  Stocks Are Overbought Relative To Bonds

Thanks for following, I appreciate your interest! Please forward or share this post.

Looking for further insights? Check out my work at Topdown Charts

In the original post I shared what I thought would be the 10 most important charts to watch for global multi-asset investors in the year ahead (and beyond). In this article I have updated those 10 charts, and provided some updated comments on the outlook as I see it.

[Note: I have included the original comments from back at the start of the year, so you can quickly compare what I'm thinking now vs what I said back then!]

1. Global Recession 2023:  As of the latest data, the majority of the 20 leading indicators I track still point to recession. This is true across regions, factors, and lead-time windows. The headwinds from cost pressures have significantly reduced (thanks to lower commodity prices), and some short-term demand indicators have rebounded off the lows, but monetary and central bank related factors have deteriorated further — pointing to a monetary wall facing the global economy in H2.

So I think it is too early to declare victory on “recession-averted” as some parts of the economy remain stronger than expected, because the global economy still faces considerable downside risks as central banks are now overcooking tightening, just as they overcooked it on easing in 2020/21.

“One of the most interesting pieces of work I undertook in 2022 was to perform a sort of meta-analysis on all the leading indicators I’ve developed over the years.  The key takeaway from that is whether you group leading indicators by type/factor, geography, or forecast window — they are all unanimous in pointing to a sharp downturn heading into early-2023. In many ways it’s a coming full circle of the massive stimulus that was unleashed in 2020. Or as I call it: “a strange but familiar cycle”.”

2. Double Trouble: Staying with the “monetary wall” theme, this chart highlights the issue quite well as it shows how borrowing costs are surging just as credit conditions are also tightening. I think it’s hard to argue for a benign outcome in the face of evidence like that presented in this chart (credit rationing, tighter funding conditions) — at the very least, the weak spots will be exposed.

“I include this one because it goes to show how financing conditions have tightened — banks are becoming more stringent and stingy in their lending decisions, and the interest rate on those loans is now a lot higher.  So it's a situation of even if you can get a loan, you might not be able to afford it! If we do get a recession this year it could be the last straw for some of the more unsustainable business models that arose in the world of zero interest rates, and credit stress could become a key issue.”

3. Property At Risk:  Interestingly housing market valuations are actually starting to correct — partly due to malevolent effects (falling house prices), and partly to benevolent effects (rising incomes). Which is another way to say, you don’t necessarily need a housing collapse to correct historically extreme expensive valuations …you can get there just by house prices staying steady and incomes rising. But a situation of higher for longer interest rates will stress this process.

“Housing market valuations reached a record high across developed markets last year.  That’s going to be a problem if rates stay high or head higher (and if real incomes continue to squeeze).  Key risk to monitor.”

4. Unflation:  Inflation is on the decline due to the commodity bear market, normalization of global supply chains, and increasingly also as demand softens. That’s mostly about headline inflation, and headline definitely effects core, but the key for core inflation from here is demand destruction leading to a freeing-up of capacity.

As economic sentiment rolls over again after a brief rebound, the gap in this chart suggests capacity utilization (labor + industry) catches down.

“The downward drift in commodity prices is already going to dampen headline inflation, but a recession will seal the deal (the fastest way to free up tight capacity is demand destruction: central banks understand this).”

5. Bond Yield Go Down:  So there has been some rebound off the lows in the macro indicators in this chart, but then the indicators still point to major downside for bond yields. Maybe we just have a longer lead time — perhaps similar to how bond yields traded on the upside previously.

“Weaker growth, credit stress, housing market issues, lower inflation… it’s all a recipe for lower bond yields.  If we take my macro models literally then US 10-year bond yields could head back below 2.0% (even as low as 1%?!) by the middle of this year.  Sure, there’s a lot of if’s and but’s around that, but an interesting forecast being suggested by the data, and it fits with the macro (and valuations).”

6. Bonds Beat Stocks:  Thanks in part to AI-hype (combined with previous excess pessimism), stocks have been outperforming bonds. But again, on the “monetary wall“ vs the economy theme, this may not last as the monetary conditions indicator points to bonds significantly beating stocks over the next 12-18 months.

“On valuations, treasuries are cheap, and stocks are not.  By itself that means bonds have the advantage, but bonds also disproportionately benefit in the event that global recession does indeed set in.  The leading indicator affirms this notion in the chart below.”

7. Monetary Risk to Macro Risk:  Some might be pointing out by now that markets already reacted to monetary risk last year. And indeed, the key ingredient if stocks are to underperform bonds will be for recession to set in. And as it turns out, the hard data is rapidly decelerating (and soft data is dropping again after a brief bounce). Beware of bad macro.

“Arguably much of the pain in equities last year was down to the rates/inflation/monetary shock. Recession risk means slowing growth is set to become the bigger concern this year.”

8. Tech Unwind: As earnings share of the techy sectors has declined further, market cap weighting has… increased! The tech sector unwind has unwound. Although you might argue that AI hype has just delayed the inevitable on this one.

“Definitely different from the dot com bubble, but definitely also some excesses that needed to be unwound.  My sense is we are still just over midway through this process, and ultimately: growth stocks can’t outgrow the macro.”

9. EM Stocks & Bonds:  Despite the rebound already, I still think this is an overlooked corner of the markets — EM sovereign bonds likely gain significantly as EM central banks begin to turn the corner on rate hikes. EM equities also look good, despite a false start as seemingly everyone’s favorite asset class at the start of the year.

“When it comes to emerging markets, the equities are looking somewhat cheap, but what’s really interesting is where the bonds got to.  There is what appears to be a major once-in-a-decade value setup for emerging market sovereign bonds (I am talking at the asset class level, equal-weighted). I think this could be one of those moments in time for asset allocation, but a few things do need to go right for this one to work.”

10. China Policy Map:  Speaking of turning the corner on interest rate hikes, China has finally delivered with a 10bp rate *cut* this month, and the inflation composite for China suggests the PBOC has ample scope to cut further. Similarly, LatAm policy rates have as a group basically peaked, so it seems the pivot to rate cuts will start in the same place as the global pivot to rate hikes originally began (EM as a group were first to hike, and now are first to pivot to cuts).

“With China transitioning away from zero covid to zero cares about covid, the door is opening wider and wider for more forceful stimulus.  The property market downturn, global growth risks, and clear disinflation trend makes for a classic and compelling case for monetary easing. Amid an otherwise gloomy outlook for 2023, this could be a key bright spot for macro and markets if they do step up stimulus. So keep an eye on China macro.”

Summary and Key Takeaways:
-Leading indicators still point to recession (with a “monetary wall“ in H2)
-As a result (and along with tighter funding conditions), credit stress and real estate market risks are likely to remain a hot topic
-Weaker growth reinforces lower pricing pressures (maybe even deflation risk)
-All of this supports the idea that bonds rally; 10yr yields could move sharply lower
-For stocks it’s a situation of moving from the monetary/inflation shock of last year into macro risk this year, and stocks likely underperform vs bonds as bonds rally and stocks deal with a prospective global recession [albeit a few big *ifs* here]
-EM assets (stocks and sovereign bonds) look promising, but a few things need to go right, such as a peak in EM policy rates and extension of US dollar weakness
-Despite the mostly gloomy prognosis, there remains ample opportunities for active asset allocators as the cycle progresses and risk vs reward balance shifts

Overall: I would repeat my quip of this being a “strange but familiar cycle”, particularly in that a lot of the usual macro/asset allocation sign posts that we usually follow continue to work (albeit with some nuance) and are pointing fairly clearly to the next steps. Hence from an asset allocation standpoint I’d be overweight defense (cash and government bonds) vs underweight growth assets (equities, commodities, credit) given the weight of risks, despite the big shift in sentiment in H1 (everyone’s bulls now that price is going up again!).

—

Thanks for reading! Thoughts & Questions welcome in the comment section ↓

n.b. these charts were first featured in my 2022 End of Year Special Report — click through for the full report (free download)

Best regards,

Callum Thomas
Head of Research and Founder of Topdown Charts

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is a semi-regular focus piece with topics spanning macro, markets, stocks, commodities, regions, and various other intriguing research.

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1. Bond Yields Breaking Out Again:  Interesting chart showing US 10-Year treasury yields breaking higher – “if this was a stock, it would be a decent setup” (breakout, moving averages turning up, short-term moving average crossover). And the way I look at the world, if I see an interesting technical chart like this to me it is a prompt to go and fill out the rest of the picture to see if there is a there there.

Source:  @jonathanharrier

2. Back into Bonds: As yields rise investors are getting back into bonds.  At a certain point, the yield from buying and holding bonds outweighs the risk of mark-to-market capital losses on bonds if yields rise further.  But also interesting from a sentiment standpoint to see the big run of big outflows turn the corner.

Source:  @biancoresearch

3. Fund Managers Like Bonds: Meanwhile, fund managers are already on board; overweight bonds and underweight equities.  Essentially they are betting on bonds to outperform equities e.g. in a situation of recession where yields go down and stocks stumble as earnings dive and risk appetite fades.

Source:  @BobEUnlimited

4. Bond Yield Macro Divergence: But for now, the bond market is not buying the recession thesis – global PMIs point to economic slowdown, while bond yields are trading as if it’s economic boom times.

Source:  @Callum_Thomas

5. All-in to All-out: Back on flows, investors are selling both stocks and bonds.  But perhaps most interesting in that chart is the climax of inflows around the peak in bonds, and now a tentative tick up from record outflows.

Source:  Topdown Charts @TopdownCharts

6. Bond Sentiment: This chart shows bond market sentiment from the Consensus Inc indicators.  There’s two interesting things: 1. Sentiment is still mostly bearish (shown inverted); and 2. The shift in sentiment regimes/ranges from the deflation risk period to inflation risk period (and how sentiment is turning off the edge of the range – consistent with the upside move in yields underway at the moment).

Source:  Topdown Charts @TopdownCharts

7. Rising Rates vs Rising Yields: Another aspect tangled up in the inflation narrative is the rising rates aspect, and historically the direction + peaks/troughs of policy rates set the tone for bonds, and thus a scenario of further rate hikes will likely mean a window of further upside for bond yields (and hence a sustainable bottom in bonds probably needs a peak (and pivot) in policy rates).

Source:  Topdown Charts @TopdownCharts

8. Taylor-Made: This version of the Taylor Rule suggests cash rates are still way too low.  And based on the previous comments, would also suggest that bond yields may also need to head higher yet.

Source:  @LynAldenContact

9. Inflation Bond Model:  Another perspective, my long-term rate of inflation model is still pointing to US 10-year yields in the high 4%’s.  And going back to that macro divergence chart, it’s clear that the bond market is still pricing off inflation and policy rates rather than recession risk (for now).

Source:  Topdown Charts @TopdownCharts

10. Bond Yields vs Nominal Growth:  And to belabor the inflation vs growth aspect a little further, this one shows bond yields loosely linked to the rate of nominal GDP growth.  Which again speaks to the point that inflation and/or growth need to head lower for bond yields to come back down (but also implies that if nominal growth finds a new higher plateau then so too will cash rates and bond yields).

Source:  @ssinvestments8

Thanks for following, I appreciate your interest!

My research firm, Topdown Charts, has a NEW entry-level service, which is designed to distill some of the ideas/themes/charts from the institutional research service to provide the same high quality insights at a more accessible price.

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Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is basically a semi-regular special focus piece with topics spanning macro, markets, stocks, commodities, regions, and research notes.

You should expect to see a mix of the timely and front-of-mind issues, as well as some more non-obvious areas under the radar.

Hope you enjoy!

1. Valuations:  Eurozone equities in the Cheapzone.

Source:  Chart of the Week - Deep Value in the Eurozone

2. Relative Value: European equities appear to be pricing in a much more catastrophic backdrop than US equities — currently trading at a historically extreme cheap valuation discount.

Source:  @StephaneDeo

3. Solemn Seers:  Strategists see little upside for European equities, and still see substantial downside — basically telling us that the bounce we’ve seen is all you get. Makes me think of that saying: "If it's obvious, it's obviously wrong”.

Source:  @dlacalle_IA

4. Investor Exodus:  There are a few interesting standouts on this table, but the biggest standout is Europe -- massive outflows this year.

Source:  @MRBullMktEver

5. Most Hated Nation:  And another perspective on flows — this one shows flows standardized against AUM, so it's all the more stark to see how investors have been giving up on Europe (even worse than UK!).

Source:  @DuncanLamont2

6. Cyclical Flows:  And here’s another interesting flows chart — this one shows how after some initial optimism, investors have dumped European cyclicals vs defensives... yet another sign of the extreme pessimism on display in what people are actually *doing* with their money.

Source:  @JohnPlassard [Also was featured in the 13-November ChartStorm]

7. Sour Surveyed Sentiment:  European surveyed sentiment (combined readings from the Sentix and ZEW surveys) — briefly reached the most pessimistic level on record.

Sentiment so bad it's good? (technically speaking, from a sentiment standpoint, this would be considered a bullish contrarian signal i.e. reaching an extreme pessimism level and then ticking higher).

Source:  @topdowncharts

8. Institutional Investor Confidence Index:  European institutional investors are becoming slightly less pessimistic. The indicator is still below 100, but clearly improved from the low points; perhaps the improved valuations are helping offset the risk backdrop.

Source:  @topdowncharts

9. Earnings: Amidst all the pessimism you might be surprised to know that next 12-month bottom-up earnings estimates for European equities just hit a 10-year high.

Source:  @matthew_miskin

10. Macro Outlook: Of course, one issue for earnings will be a potential recession in Europe (and the rest of the world for that matter)!

Source:  @skhanniche via @RollinFrederic

BONUS CHART >> got to include a goody for the goodies who subscribed.

European Recession — First-in First-out?  Going by the manufacturing PMIs, Europe was the first to enter recession, and it begs the question as to whether they might end up being the first to exit recession …just as the rest of the world falls into recession!

As a point of background, I had expected Europe to head into recession into 2023, but the Russian invasion of Ukraine basically brought-forward recession in the form of a massive negative shock to confidence (the headline effect, and falling asset prices), and of course the massive shock to expenses in the form of the energy crisis.

So there is a chance that as some of the effects of those shocks begin to fade that Europe could see a relief-rebound in its economy (especially with covid-related fiscal stimulus rebuild measures still flowing through).

However this would be set against the backdrop of still powerful monetary headwinds and a slowing global economy. So I would not necessarily be rushing to get bullish on the European economy.

As for European equities however, the valuation case is falling into place, and sentiment/flows are clearly contrarian bullish. But the last pieces of the puzzle would be for monetary headwinds to fade (or ideally turn to stimulus), and for the economy to bottom and turn up (and ideally for geopolitical risk to become less asymmetric to the downside, and ideally get resolved entirely).

Definitely something there, and something to pay attention to, but perhaps requires a bit of patience and an eye on risk as the puzzle pieces slowly fall into place.

—

Best regards,

Callum Thomas

My research firm, Topdown Charts, has a NEW entry-level service, which is designed to distill some of the ideas/themes/charts from the institutional research service to provide the same high quality insights at a more accessible price.

Give it a try and let me know what you think! :-)

Subscribe to Topdown Charts

For more details on the service check out this recent post which highlights: What you get with the service; Performance of the service; and importantly: What our clients say about it…

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is basically a semi-regular special focus piece with topics spanning macro, markets, stocks, commodities, regions, and research notes.

You should expect to see a mix of the timely and front-of-mind issues, as well as some more non-obvious areas under the radar.

Hope you enjoy!

1. Recession Feeling:  Recession is slowly but surely becoming the consensus as the evidence builds up — the latest BofA fund manager survey shows the majority now expecting recession over the next 12-months. While you sometimes want to go against the consensus, the chart goes to illustrate how the crowd often gets it right on the way into a changing situation (and then often ends up overstaying its welcome). The key example would be the leadup to 2008. The 2020 situation on the other hand was an entirely different beast — basically artificial (turn the economy off over night), and paired with massive stimulus. 2022/23 meanwhile is your more traditional recession setup, and likely doesn’t involve the same kind of quick fix.

Source:  @MikeZaccardi

2. "New Orders?" or "No Orders!" The empire manufacturing future new orders indicator has dropped into recession territory.

Source:  @Lvieweconomics

3. Tech Sector Layoffs: Although ‘small’ in the scheme of things (the sector has a disproportionately small share of employment vs earnings/market cap/GDP contribution) but as a canary in the coalmine it's a very clear warning sign. I would point out that a lot of the larger tech companies have already disrupted/eaten sufficient market share that by now it’s less about adoption and innovation and more about what’s happening with the economy in terms of marginal revenue growth. This would be a key sign and symptom if that assertion is true (cost-cutting into a downturn).

Source:  @carlquintanilla

4. Housing Boom & Bust Cycles:  One key element of the apparent impending recession is the rapidly unfolding housing bust (and it can easily become a self-reinforcing factor). With the interest rate shock + cost of living shock + apparent economic slowdown (+fact that US housing market is the most overvalued in history), housing is naturally going to have a bad time.

Can already see it in the charts...

Source:  @zerohedge

5. CRE Crunch:  It's a similar story in Commercial Real Estate, where rising interest rates, uncertainty on occupancy (WFH and cost cutting), and stretched prices thanks to yield-chasing, have seen banks become a lot more cautious on lending — which is often a precursor to a downturn in in the sector.

Source: @topdowncharts

6. Shipping Sink:  Taking a global perspective, there are some clear signs that global trade is cooling. The demand + supply shocks drove shipping costs to record levels, but as the supply side responds and demand cools: round-trip.

Source:  @stephanemonier

7. Global Credit Crunch: The monetary tides are going out… If a rising tide floats all boats, a receding tide may well sink all boats!

Source:  @MacroAlf

8. The Monetary Script:  The global manufacturing PMI is sticking to the script set by central bankers. It's simple: ease policy, economy goes up, tighten policy, economy goes down. This is counter-cyclical macroeconomic policy 101.

Source:  @topdowncharts

9. Pivot vs Profits:  Pivot Likers need to take note on this one. Yes, the Fed likes to decelerate tightening and then ease heading into recession... but then earnings go down (and sometimes bigly).

Source:  @steve_donze via @MichaelAArouet

10. Recession Trading:  Best not to get to cavalier about risk taking heading into recession, it's hard to know how long/deep a recession will be (+what may break along the way). This chart is a cautionary that yes markets will look to price recession in, but often the ultimate bottom comes later in the process...

Source:  @saxena_puru

BONUS CHART >> got to include a goody for the goodies who subscribed.

Deflatometer:  stock markets around the world are pricing in a global recession.

This chart tracks the proportion of countries who are seeing a negative annual rate of change in their stockmarket (along side the same for forward earnings, and industrial production). The 2008 and 2020 episodes show how it lights up in tough times.

Clearly there are a few episodes here where the market got out of hand relative to what happened with the economy (basically: red line go up = markets puking, blue/black line go up = economy hurting).

As things stand, most of the world’s stockmarkets are in a downturn. But perhaps most notably, we are starting to see more countries show up with falling earnings and industrial production — this is what you would expect to see during the early stages of a global recession.

It’s hard to know in advance how deep and drawn-out a recession will be, but I would note that we are seeing a record pace of monetary tightening, and multiple leading indicators around the world are pointing to recession.

So I don’t think the markets are wrong to price-in recession. Pragmatically speaking it means a more cautious approach remains warranted. But the other implication of this chart is that if by some chance recession doesn’t eventuate (or is shallower/shorter than expected) then it will be back to business for markets…

—

Best regards,

Callum Thomas

My research firm, Topdown Charts, has a NEW entry-level service, which is designed to distill some of the ideas/themes/charts from the institutional research service to provide the same high quality insights at a more accessible price.

Give it a try and let me know what you think! :-)

Subscribe to Topdown Charts

For more details on the service check out this recent post which highlights: What you get with the service; Performance of the service; and importantly: What our clients say about it…

Unlike the usual weekly ChartStorm (which focuses on the S&P500 and related issues), the Off-Topic ChartStorm is basically a semi-regular special focus piece with topics spanning macro, markets, stocks, commodities, regions, and research notes.

You should expect to see a mix of the timely and front-of-mind issues, as well as some more non-obvious areas under the radar.

Hope you enjoy!

NEW: Sign up to the (free) Chart Of The Week over at the new Topdown Charts Substack entry-level service: Subscribe to the Chart of the Week

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1. Bond Bear Market: So much for "safe" and "conservative" fixed income assets... Bloomberg global bond index down more than -20% since the peak (and note that is total return, so it includes interest income earned from holding bonds (also note, this is nominal — the real or CPI adjusted figure would make it closer to -30% or worse!)).

Source:  Endowus

2. Bearish Momentum:  Popular treasuries ETF, , seeing a major negative momentum thrust; price action is completely dominated by extreme downside volatility. Bottoms can be found in these conditions, but with treacherous risk.

Source:  @exposurerisk

3. Global Government Bond Yields:  Developed markets 10-year bond yields are still basically on a one-way road. Average yield across 18 countries is pushing up towards the highs, and 200dma breadth remains maxed-out in the direction of higher yields.

Source:  @topdowncharts

4. Zooming Out: The long-term bond Price [n.b. we’ve been switching back and forth between charts of price and yields, which as you should know - move inversely] is at a critical juncture here, very real risk of breaking down and a new wave of pain for bonds (equally though, this would be a convenient place to bottom).

Source:  @mark_ungewitter

5. Bond Energy:  Energy markets appear to be saying bond yields should be gong lower. However it seems like the 30-year yield is believing the line that lower energy is just because of SPR releases.

We will soon know the truth... (which is probably something in between!)

Source:  @FusionptCapital

6. Bond Yields vs Backlogs: It took a while for bond yields to catch up to rising backlogs, but now the open question is how long will it take bond yields to catch back down to easing backlogs?

Source:  Chart of the Week - Backlogs and Bond Yields

7. Another Macro Divergence:  With economic data surprising to the downside, again, the question is how long can rising bond yields go on for?

Source:  @deerpointmacro

8. Yet Another Macro Divergence:  And another one, copper/gold ratio edging lower vs bond yields higher. Which one of these is "wrong" ?

Source:  @andrewjames3200

9. (on the other hand...) The long-term rate of inflation model says bond yields can still go higher (and possibly even stay higher, if inflation stays high).

Source:  Chart of the Week - Bond Yields and Inflation

10. Macro Tides:  (but) with the global liquidity tides going out, and numerous leading indicators pointing to lower growth and inflation, it's probably only a matter of time and timing for bonds.....

Source: @RaoulGMI via @DTAPCAP

Thanks for following, I appreciate your interest!

Summary and Closing Thoughts

To sum up, bonds (focused on longer-term treasuries in this context) face a fairly mixed technical backdrop, with an established bear market and substantial bearish momentum. Yet at the same time, you might argue that bonds look technically oversold, and price seems to be sitting at a critical make-or-break juncture.

Overlay upon that the various macro divergences, where most growth/economic data (and macro analogs) point to lower bond yields. Yet at the same time, those focused on inflation might argue that bond yields have further upside to come. So there is something for bulls and bears at the moment.

I think the easiest way to reconcile all this is to say that it’s simply a matter of time and timing. The inflation fixation is keeping bonds under pressure right now (along with unfriendly central bank policies), but paradoxically, or perhaps logically; the more that inflation is a problem the more that central banks will tighten and the higher that bond yields go the greater the headwinds for the economy.

That means the greater the odds of a global recession, and longer-term bonds are supposed to price off of that sort of thing. But with high inflation still a clear and observable reality in the data, maybe what it will really take is for growth risks to go from just a whole bunch of leading indicators to actual clear and observable weakness in the data. And interestingly, several PMIs are starting to show just that…

Appreciate your ongoing support and interest.

—

Best regards,

Callum Thomas

My research firm, Topdown Charts, has a new entry-level Substack service, which is designed to distill some of the ideas/themes/charts from our institutional research service to provide the same high quality insights at a more accessible price.

Give it a try and let me know what you think! :-)