Markets & Instruments
Intermarket Analysis: How Stocks, Bonds, Gold, and the Dollar Connect
Markets don't move in isolation. Understanding the relationships between stocks, bonds, commodities, and currencies gives you a massive macro edge.
Key rules
- Rising bond yields hurt growth stocks most — high-duration assets are most sensitive to rate changes
- A weakening dollar is bullish for commodities, emerging markets, and gold — track DXY daily
- Gold rising while stocks also rise = broad liquidity/inflation trade; gold rising while stocks fall = risk-off/crisis
- Commodities leading higher typically signal incoming inflation — watch for the Fed's response to adjust your stock positioning
- When bonds, stocks, and commodities diverge from historical relationships, a macro regime change may be underway
Intermarket analysis studies the relationships between different asset classes — stocks, bonds, commodities, and currencies — to identify macro themes and anticipate sector rotations and trend changes.
**The Four Asset Classes** Stocks, Bonds (fixed income), Commodities, and Currencies form the four pillars of intermarket analysis, as codified by John Murphy in his foundational work "Intermarket Technical Analysis."
**The Key Relationships**
**Bonds and Stocks**: Generally inversely related (in normal environments). When bond prices rise (yields fall), stocks tend to benefit — lower borrowing costs improve corporate earnings. When yields rise sharply, stocks often sell off — particularly growth stocks whose valuations are most sensitive to discount rates.
**The Dollar (DXY) and Commodities**: Strongly inversely related. Commodities are priced in USD globally — a stronger dollar makes commodities more expensive for non-USD buyers, suppressing demand and prices. A weak dollar makes commodities cheaper globally, boosting demand and prices. Dollar weakness = tailwind for gold, oil, copper, and agricultural commodities.
**Gold and the Dollar**: Gold is the primary alternative currency to the USD. Dollar strength typically pressures gold; dollar weakness supports gold. Gold also rises during risk-off periods (crises, wars, deflation fears) regardless of the dollar.
**Commodities and Inflation**: Rising commodity prices precede rising consumer inflation. Oil prices are a leading indicator — rising energy costs feed through to transportation and production costs, then to consumer prices.
**Practical Applications** - Rising yields + rising dollar = headwind for growth stocks and gold - Falling dollar + rising commodities = tailwind for energy and materials stocks - Stock market and bonds both falling simultaneously ("risk-off + inflation" environment) = cash and commodities outperform - The relative performance of growth (QQQ) vs value (XLV, XLE) tells you the market's read on inflation vs growth