Facts N’ Figures

Today, lets take a look at some statistics surrounding historic moves from high inflation to lower (not low) inflation and a softer economy. In the news today was a story noting some hints by Fed Chair Powell that hiking may be over – not unexpected. Typically, the Fed pauses once it sees evidence of falling inflation and weakness in the economy . Then, the easing cycle starts when recessionary pressures are already present. So don’t expect interest rates to decline right away.

With these facts in mind…


What is the average rate cut when it does happen?

A recession typically arrives fairly quickly after the end of the hiking cycle and the Fed responds by cutting rates by -500 basis points on average

Which sectors perform well after the Fed pauses and eventually cuts?

When the Fed takes a pause, the long-end of the Treasury curve and defensive or rate-sensitive equities perform well (Financials, Utilities, Real Estate), and staples. This, while many (not all) commodities and cyclical stocks underperform. Specifically Crude Oil, Gold, Copper. However base materials (fertilizer etc) can do well, along with energy such as nat gas etc.

Keep in mind my rules presented on the very important video I did last week (watch it here if you haven’t). One rule:  Trade, trade, trade.

Chart below courtesy Rosenberg Research.

If commodities typically underperform during recessions, why trade commodities?

True enough, the seasonal trends for commodities are poor from October to year-end. The chart below displays the annual seasonal trend for the CRB Index.

Thereafter, seasonals are actually quite bullish–with oil being very strong from February to the spring. More importantly, I am a firm believer that stagflation – not just a normal recession, will be the game herein. Higher inflation and possibly maintaining current rates for longer. That’s bullish for commodities.

Given the state of geopolitics (bullish oil, see my last blog) and the continued concerns regarding  “sticky” inflation, commodities seem poised for better than average returns than statistics suggest. Moreover, the longer termed cycle suggests a commodity bull market may have started 2 years ago.



Final thoughts

On October 12th I warned you to watch that the test of the upper trend channel by the SPX did not fail. Well, kinda looks like it failed, doesn’t it? Chart below. This is NOT bullish for the markets, given that the failure suggests a continuation of the downtrend. I noted on that blog that we were going to hold off on buying stocks (aka continue to hold lots of cash) until this week to see if the  bear channel broke out. It didn’t .We still hold our cash at ValueTrend.

Warning: Keep an eye out for a test of 4200. If that fails, this implies a major support level has been breached AND a a lower low to continue the downtrend. Like I have noted in prior blogs, we’re looking at 3800 if 4200 breaks. That has not happened yet! Not a prediction! Just telling you to keep your eye on the ball.






  • An alternative view is that the Fed follows the 13 week treasury market, not leading it. Treasury market prices follow supply(lot of it) and demand(not so much).

  • I’ve got the S&P 500 at a lower low and break of the 200 dma. If it stays below the 200 dma for more than 3 to 5 days should we be raising more cash? Yield curves in the US are starting to normalize. Are we in a recession?

    • 4200 is the vital area–its where the massive support from last winter intersects with the current trend channel AND the 200 day SMA. A break below 4200 for 3++ days is a sign of 3800 as next target. I expect to raise cash as/ if/ when, although we are close to 30% already

  • Hi Keith,
    I re-listened to your August video on the TSX. Obviously, a few things have changed since you posted your views. 19500 and 19300 support levels both failed.
    What support levels on the TSX are you now watching?

  • Will you care about a brief breach of 4200 or are you looking for a weekly close below? It seems to me that the Nasdaq and S&P 500 have managed gains this year – albeit from oversold, low levels in ’22 – with so much working against them (rates, historically weak Treasury markets, inflation, cost of capital crisis, high oil, wars). I wouldn’t be surprised if we defend 4200.

    Also, would you consider a multi-week break of 4200 to be an invalidation of the uptrend since last October? I’ve read that some technicians view it that way.

    Thanks, Keith!

    • Yes Paula–I need a proven break of 4200 to think that we are breaking the longer termed uptrend. That means, as you say, several days – and the longer it stays below 4200 (weeks, per your comment) the more significant. But we are not there yet. 4200 is holding so far.
      Regarding the SPX–its been the magnificent seven AI stocks that have done all the work–just look at the % stocks over their moving averages (50 or 200) or the new high/low indicators. Breadth sucks. This is like having Sydney Crosby on your team of underperformers. If he gets injured, the talent just disappeared, and the game is lost. To win the Cup, you need a widespread team of talent. The SPX is relying on the 7 Sydney’s to do all the lifting, with most other players on the B-list at the moment. Until that breadth changes, its vulnerable.
      But first things first–I am hoping 4200 holds. Would love to deploy my cash. But rules be rules.
      And pardon the reference to Sydney-who is long retired. I don’t actually follow sports beyond cycling, so I had to draw from the last time I watched hockey – back when Sydney played. Yeah, its been that long.


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