Amid rising interest rates and persistently high inflation, more than 50% of adults believe the U.S. economy is in a recession. But Adam Turnquist, chief technical strategist for LPL Financial, says that rising copper prices over the last several months suggest the economy may be doing better than headlines suggest right now.
Dr. Copper's Recession Take
Copper is widely considered a leading indicator for global economic growth based on its widespread use across many sectors of the economy. This has given the brown metal the popular "Dr. Copper" nickname, with its "Ph.D. in economics."
Rising copper prices suggest strong copper demand, which indicates a growing global economy. And, historically, an uptrend in copper does not portend a recession, Turnquist noted.
The price of copper is sharply off its July lows after retaking the 10-week moving average line in recent weeks. Still, it remains about 19% off its 52-week high, which was set in March 2022. Year to date, copper is up more than 7%, according to Dow Jones Market Data.
On Feb. 22, Rio Tinto reported lower-than-expected profits and slashed its dividend on weak demand for metals due to the lockdowns in China. Shares sold off more than 3% in response.
Despite the weaker-than-expected results. the company said it wants to double its annual copper output by the end of the decade. "I certainly think we are fully aligned with that view that the world needs more materials, and we're upping our game against that, and at the right time," said Peter Cunningham, Rio Tinto's chief financial officer.
Meanwhile, global copper miners are spending billions of dollars on deals and raising budgets for new projects in a bet on the energy transition. This type of commitment does not support the recession argument.
Copper Stocks To Watch: BHP, Rio, Southern Copper
The Barclays iPath Bloomberg Copper ETF, which tracks the price of copper using a single copper futures contract at a time, is forming a cup with handle that has a 22.09 buy point.
Australian miner BHP sold off sharply amid last week's earnings results, falling below a 65.28 buy point in a cup with handle.
U.K.-based Rio Tinto is consolidating below its 10-week line after last week's earnings-fueled losses. The stock is close to triggering the 7%-8% loss rule below a 73.45 cup-with-handle buy point, according to IBD MarketSmith chart analysis.
Finally, Southern Copper is finding bullish support at its 10-week line, a key level, placing the copper leader in a new buy area. Shares are sharply above their 63.26 cup-with-handle entry following an early-January breakout.
This constructive price action suggests a recession isn't in the cards, at least in the short term.
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