Amid rising interest rates and continued high inflation, more than 50% of adults believe the US economy is in recession. But Adam Turnquist, LPL Financial’s chief technical strategist, says rising copper prices in recent months suggest the economy may be doing better than the headlines currently suggest.
The Recession of Dr. Copper
Copper is widely regarded as a leading indicator of global economic growth based on its widespread use in many sectors of the economy. This has given the brown metal the popular nickname “Dr. Copper,” with his “Ph.D. in economics.”
Rising copper prices indicate strong demand for copper, suggesting a growing global economy. And historically, an upward trend in copper does not predict a recession, Turnquist noted.
The price of copper has moved sharply from July lows, having retraced the 10-week moving average line in recent weeks. Still, it remains about 19% away from the 52-week high, which was set in March 2022. So far, copper is up more than 7%, according to Dow Jones Market Data.
on February 22 Rio Tinto (RIO) reported lower-than-expected earnings and cut its dividend due to weak demand for metals due to China’s lockdowns. Shares sold more than 3% in response.
Despite the disappointing results. the company said it aims to double its annual copper production by the end of the decade. “I certainly think we fully agree with that view that the world needs more materials, and we are stepping up our fight against it, and at the right time,” said Peter Cunningham, Chief Financial Officer of Rio Tinto.
Meanwhile, global copper miners are spending billions of dollars on deals and raising budgets for new projects in a bet on the energy transition. These kinds of commitments do not support the recession argument.
Copper stocks to watch: BHP, Rio, Southern Copper
The Barclays iPath Bloomberg Copper ETF (JJC), which tracks the price of copper using a single copper futures contract at a time, forms a handle cup with a buy point of 22.09.
Australian miner BHP (BHP) sold off strongly during last week’s earnings results, falling below a buy point of 65.28 in a handle cup.
UK-based Rio Tinto is consolidating below the 10-week line after last week’s revenue-fuelled losses. According to the IBD MarketSmith chart analysis, the stock is close to triggering the 7%-8% loss line below a buy point of 73.45 cups with handle.
Finally, Southern copper (SCCO) is finding bullish support at its 10-week line, an important level, placing the copper leader in new buying territory. The shares are sharply above their 63.26 cup-with-handle entry after a breakout in early January.
This constructive price action suggests that a recession is not on the horizon, at least in the near term.
Follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more information on growth stocks and the Dow Jones Industrial Average.
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