In an environment of rising interest rates and persistently high inflation, more than 50% of adults believe the US economy is in recession. But Adam Turnquist, chief technical strategist for LPL Financial, says the rise in copper prices in recent months suggests the economy is doing better than the headlines suggest at the moment.
Dr. Copper’s Recession Hold
Copper is widely regarded as a leading indicator of global economic growth due to its widespread use in many sectors of the economy. This gave brown metal the popular nickname “Dr. Copper”, with its “Ph.D. in economics”.
Rising copper prices suggest strong demand for copper, indicating a growing global economy. And, historically, an uptrend in copper does not portend a recession, Turnquist noted.
The price of copper is down sharply from its July lows after retracing 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.
February 22, Rio Tinto (RIO) reported earnings below expectations and cut its dividend due to weak demand for metals due to lockdowns in China. Shares sold more than 3% in response.
Despite weaker results than expected. the company said it wanted to double its annual copper production by the end of the decade. “I certainly think we’re fully aligned with this vision 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 transactions and increasing 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 (JJC), which tracks the price of copper using only one copper futures contract at a time, forms a cup with a handle that has a buy point of 22.09.
australian miner BHP (BHP) sold off sharply amid last week’s earnings, falling below a buy point of 65.28 in a handle cup.
Britain’s Rio Tinto is consolidating below its 10-week line after last week’s earnings-fueled losses. The stock is set to trigger the 7%-8% loss rule below a buy point of 73.45 cup with handle, according to chart analysis from IBD MarketSmith.
Finally, Southern Copper (SCCO) is finding bullish support at its key 10-week line, putting the copper leader in a fresh buy zone. The shares are clearly above their entry of 63.26 cup with handle after a breakout in early January.
This constructive price action suggests that a recession is not in the cards, at least in the short term.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen to learn more about growth stocks and the Dow Jones Industrial Average.
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