Intermarket Outlook

As of 03/29/2017

The current economic environment in the US appears to be weakly inflationary. The outlook for US stocks is bullish. Commodities are weakly bullish. Bonds are bearish.

Detailed stock, commodity and bond leadership breakdowns can be viewed here. High-level intermarket trends are examined more closely below.

The Dollar, Commodities and Bonds

The US dollar’s trend has been bullish since May, 2016 (chart). A rising dollar is deflationary and points to lower commodity prices.

Gold (chart) and oil (chart) prices (leading indicators of inflation) are both rising, casting serious doubt on the deflationary implications of the dollar’s trend.

Base metal prices are rising relative to bond prices (chart). The ratio of base metals to bonds generally rises when economic strength and inflation are prevalent.

But prices across the broad commodity complex are falling relative to bond prices (chart). A falling commodity-to-bond price ratio is deflationary and often precedes or coincides with lower interest rates. Lower rates in turn are usually supportive of stocks.

Stocks, Bonds and Risk Appetite

Looking in general at US large-cap stocks, near-term price action appears to be bullish. Long-term action is also bullish (chart).

Consumer discretionary stocks are underperforming consumer staples (chart). Discretionary stocks tend to lag when the economy is perceived to be struggling or contracting.

Financial stocks are underperforming utility stocks (chart). This is typical when economic conditions are seen as faltering and volatility is expected to rise.

Stocks in general are currently favored over bonds (chart) and US stocks are currently favored over both developed (chart) and emerging market (chart) foreign stocks.

Lastly, high-yield “junk” bonds are outperforming “risk-free” US treasuries (chart) as credit spreads narrow. Credit spreads generally narrow when investor appetite for risky assets is robust or increasing. That fact, in turn, is near-term positive for stocks.

DISCLAIMER: The information contained on this page is provided as is and for reference purposes only. It should in NO WAY be construed as investment advice. No member of The Relativity Report staff is a registered broker, financial adviser or analyst and in no event will we be liable for any damages – direct or indirect – arising from any decision made or action taken by you based on the information contained on this site. You should consult a stockbroker or licensed financial adviser before making any investment or trading decisions.