Inflation risk is beginning to become a bigger theme and the markets have been reacting accordingly. Meanwhile, my “lumber/gold” signal flipped to risk-off for the first time since November, notes Michael Gayed, editor of The Lead-Lag Report.
While the major US averages were little changed last week, both gold and long-term Treasuries were up 2%. While yields did tick higher at the end of last week, there is a risk-off pulse that’s been building over the past several weeks. It comes from one of my intermediate-term market signals, the lumber/gold ratio. Here are the details...
(Editor’s Note: Michael Gayed is speaking at the 2025 MoneyShow/TradersEXPO Las Vegas, which runs Feb. 17-19. Click HERE to register)
Target Investor: Short- and long-term investors willing to trade more frequently using the classic cyclical vs. defensive asset comparison.
Current Indicator: Risk-Off
Strategy: Lumber/Gold Bond - Example: Invest in iShares US Treasury Bond ETF (GOVT) over the SPDR S&P 500 ETF Trust (SPY)
Indeed, we’re seeing some leadership from defensive sectors and themes. Gold continues to rally. International stocks are having a nice little run. TIPS are outperforming again.
Since the S&P 500 and Nasdaq 100 are still pretty close to all-time highs, this is happening relatively quietly, but it’s definitely taking place.
The University of Michigan consumer sentiment and inflation expectations report last week was, I believe, an eye opener. It’s telling us in no uncertain terms that the possibility of another round of inflation is weighing heavily on investor morale. Consumer spending isn’t showing any major signs of cracking yet, but the latest downturn in sentiment due to inflation concerns could change that quickly.
