In the last Market at closing live broadcast, viewer Richard asked a sharp question:
“The ITB – the construction index – appears to be the first to fall, showing weakness in the overall economy. Is this just a setback or a sign of things to come?”
John Rowland, CMT, did not hesitate to broaden the perspective by citing two classic barometers of global growth: copper and crude oil.
“If Dr. Copper is the measuring stick of economic activity,” John explained, “then crude oil is the canary in the coal mine of recession.”
Both commodities are historically leading indicators of the business cycle.
Copper (also known as “Dr. Copper”) earns its nickname because it is used in a wide range of industrial applications, from home construction and manufacturing to power grids and electric vehicles. When copper prices fall, it often suggests a slowdown in industrial demand.
Crude oil (CLX25), on the other hand, reflects the pace of global energy consumption. Rising oil prices can signal economic expansion, while sharp declines often point to weakening demand or recession fears.
In last Friday’s broadcast, both had flashing yellow lights:
“Oil fell around $2.50 today,” John said. “That’s significant. We’re seeing a drop in crude oil prices, and that may be a sign that growth expectations are softening.”
Viewer Richard’s observation about the iShares US Home Construction ETF (ITB) fits neatly into the larger macro puzzle. Housing is often one of the first sectors to slow when interest rates fall or consumer sentiment becomes cautious.
If we add to that the weakness of copper (HGZ25) and crude oil, the data begins to “rhyme” with the economic slowdowns at the beginning of the cycle observed in recent decades.
First, check out John Rowland’s deep dive into the broader context of Friday’s market selloff. Then, keep track of these early warning signs on Barchart: