Intermarket Relationships
A summary of the relationships between the four major financial markets — currencies, commodities, bonds and stocks. From John Murphy’s Intermarket Analysis — Profiting from Global Market Relationships:
- The U.S. dollar trends in the opposite direction of commodities.
- A falling dollar is bullish for commodities; a rising dollar is bearish.
- Commodities trend in the opposite direction of bond prices.
- Therefore, commodities trend in the same direction as interest rates.
- Rising commodities coincide with rising interest rates and falling bond prices.
- Falling commodities coincide with falling interest rates and rising bond prices.
- Bond prices normally trend in the same direction as stock prices.
- Rising bond prices are normally good for stocks; falling bond prices are bad.
- Therefore, falling interest rates are normally good for stocks; rising rates are bad.
- The bond market, however, normally changes direction ahead of stocks.
- A rising dollar is good for U.S. stocks and bonds; a falling dollar can be bad.
- A falling dollar is bad for bonds and stocks when commodities are rising.
- During a deflation (which is relatively rare), bond prices rise while stocks fall.
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