Typical Late-Cycle Phenomenon — Surge In Commodity Prices

1 of the most important features of intermarket analysis is the rotation that normally takes place between bonds, stocks, and commodities at major TURNING POINTS in the business cycle. These major turns usually start in the bond market which peaks first. Rising interest rates (and the prospect for even higher rates) eventually causes stocks to peak. The main factor pushing rates higher is a strong surge in commodity prices, particularly oil, which will cause the Fed to start raising rates to slow down the inflationary spiral. At that point, commodity prices become the strongest asset class while bonds and stocks decline. The rotation between the 3 asset classes is especially relevant to the current global situation right now.

The above chart shows bonds, stocks and commodities following the normal rotational script and in the proper sequence - starting with bonds at this present moment. The black line shows how the 7–10 Year U.S. Treasury bond prices peaked around August 2020 and has been declining since then. Stocks normally peak next and the blue line shows the S&P 500 peaking at the start of this year. It is likely that U.S. stocks MAY have seen their highs for this cycle. Rising commodity prices are a major reason for the stock market peak. The green line shows the surge in commodity prices over the past few months being a major contributing factor to weakness in stocks. Spiking oil prices are a big part of the decline in stock prices. Surging commodity prices will force the Fed to start rising interest rates to combat that inflationary spiral. That normally causes the economy to slow which usually leads to a recession and for the current environment - STAGFLATION. Rising commodity prices in the face of a slowing economy are likely to lead to stagflation for the first time since the 1970s. The combination of a slowing economy and rising inflation is good for commodity traders, but bad for bonds and stocks. It also puts the Fed in a very difficult position with no choice but to raise rates to combat inflation. Rising rates, however are likely to push the U.S. economy into recession.

From the look of commodity price charts which are at or near record highs, the inflationary cycle is likely to last as the commodity bull run stretch into 2024. It lasted for an entire decade during the 1970s.

Commodity Bull Market into 2024! Timing is Everything! 时机就是一切!

** Please note that what is being shared in this article is NOT meant to be regarded as an advice or a recommendation, it is meant for EDUCATIONAL AND INFORMATION PURPOSES only and it does not constitute an investment advice, an offer or solicitation to purchase or sell the investment asset classes mentioned. **