China Stimulus, Commodities…and Recession Talk

This week, we’re looking at the effects of China modifying some tech stock policies and the People’s Bank of China (PBOC)’s efforts to stimulate the economy. Relaxing some of these industry regulations may lead to the PBOC printing more money, which could benefit U.S. markets and help buffer some volatility — an effect of unrest in Ukraine.

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Do Current Treasury Yields Indicate Recession?

Amid the concerns swirling around high inflation and rising interest rates, we’re starting to hear analysts and traders using the “R” word: recession.

There has been constant speculation that a recession is on the horizon, and the warning sign traders are looking to right now is the flattening of the yield curve, particularly the difference between the 10-year Treasury yield and the 2-year Treasury yield.

When the economy is more robust, the spread between the two is wide. It is riskier to hold a Treasury for 10 years than it is to hold a Treasury for two. Traders want to be compensated for this risk, so they demand a higher yield for 10-year Treasury notes.

Since Treasuries are considered a “risk-free” asset backed by the full faith and credit of the U.S. government, traders start to move more of their money into longer-term Treasuries. This increase in demand pushes the price of these longer-term Treasuries higher, which pushes their yields lower.

At the same time, shorter-term Treasury yields are moving higher as the Federal Reserve signals its intent to push the Federal Funds rate up to at least 2% by the end of this year.

The combination of these two values — higher shorter-term Treasury yields and lower longer-term Treasury yields — is leading to a flattening of the yield curve that’s happening so quickly it could invert. And an inverted yield curve is often a harbinger for recession.

We’ll keep an eye on this and the other indicators while keeping our fingers on the pulse of bullish trading opportunities.

China Stimulus Poised to Affect the Market

We have been saying for a few weeks that dip-buying should be focused on consumer discretionary and technology stocks, like Target (NYSE:TGT) and Costco Wholesale (NASDAQ:COST). Those were the top two sectors last week, chalking up nearly 9% in gains over a few days.

The PBOC hasn’t started “printing” more money as stimulus yet, but it looks likely they will. These things usually start with the government backing off on industry regulations, and that’s what we saw last week. We think our forecast for the retail and tech sectors is still valid this week because the market will probably get a little outside help from China’s stimulus efforts.

In Monday night’s livestream, we covered some ideas for taking advantage of stimulus in China and how this changes the outlook for stocks over the next few months. Check it out here if you missed it.

Last Night’s Livestream: 3 Ways to Play Commodities

The stock market continued to climb yesterday with movement all over the place, and virtually every sector was in the green. Last week was fantastic, and while we saw a bit of a pullback on Wednesday due to oil prices rising again and nerves over inflation, traders came back with a vengeance and saw the S&P 500 close at its highest level since early February.

Looking at the 10-year Treasury Yield, we have been seeing bond yields rising in March. For bond yields to rise, the price of bonds has to drop. We have been seeing investors pulling out of these bonds, allowing the yields to rise.

Likewise, we have seen commodity prices rising and trades moving more and more money into these commodity funds. But how can you take advantage of these moves if you don’t trade futures?

Click here to watch last night’s livestream, where we discuss three ways you can play commodities in your stock trading account.

Recent Wins

Something we want to make sure we’re highlighting each week is a “highlight reel” of sorts for our recent profit opportunities. Here’s what our readers had a chance to see in the past week:

  • 27% (15.96% annualized) on Take-Two Interactive Software (NASDAQ:TTWO) in one month…
  • 15% (1,310.13% annualized) on Micron (NASDAQ:MU) in 23 days…
  • And 14.37% (223.71% annualized) on Nike (NYSE:NKE) in 19 days.

That rounds out our total closed positions in 2022 so far to 32… and still zero losers.

Our average gain per trade is a nice 4.38%, and our average annualized gain per trade is 182.52%.

Don’t forget to catch our twice-weekly livestreams on Mondays and Thursdays at 7:00 p.m. Eastern on YouTube.

We’ll be back with you next week.

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