Intermarket Returns YTD Plus Comparison Graphs

Aug 13, 2009: 1:35 PM CST

Let’s take a quick look at how various intermarket asset classes have performed year to date as we’re halfway through August 2009.  Specifically, let’s compare the S&P 500 and the NASDAQ with the CRB (Commodity Index) along with Gold and Crude Oil and finally the 10-Year Note prices.

Perhaps surprisingly – something which may have gone undetected without a closer look like this – Crude Oil is by far the best performer so far in 2009.

The almost 60% return is followed by the NASDAQ Index, returning 27% so far and then the broader CRB Commodity Index (basket) which is up 15%.  The S&P 500 has risen 11% so far in 2009.

With positive performance in Stocks and Commodities, it is expected that the Dollar Index along with Treasury Bonds/Notes will show weakness and that is exactly the case.

As risk appetite returned to the Stock Market (and commodities) after March, the ‘haven of safety’ provided by the Bond Market declined, presumably as fearful investors pulled positions (money) out of bonds and put it to work back in stocks.

The Dollar Index is known to have a negative correlation to commodities, so broad commodity (economic) strength so far in 2009 has put downward pressure on the dollar.

While intermarket relationships are not perfect all the time, we’re seeing what we would expect in terms of broad money flow. Let’s take a closer look at these relationships since October 2008.

Now, let’s look specifically at the S&P 500 and the CRB Commodity Index:

Stocks and Commodities are Positively Correlated (move in the same direction, whether up or down) and this chart of just under a year shows us this stable relationship.

The broader commodity markets decline when the broader stock market rises, and vice versa.  This has to do in part with economic relationships, in that if the economy is expanding, then demand for commodities generally rises as demand (purchasing) increases.

Now, let’s look at another type of relationship – that of the Dollar and 10-Year Treasury Notes.

Finally, let’s compare the 10-Year Treasury Notes (price) with the US Dollar Index:

This relationship is not as ‘stable’ as stock and commodities, as you can see from this short-term chart.

Generally, the dollar is inversely correlated with 10-Year Note (or longer term bond) prices, but the red box shows that these markets can move together at times.

Often, as interest rates rise, the Dollar Index strengthens, but of course Yields and Note/Bond prices are inherently opposite.

We would thus state that *generally* the US Dollar Index is positively correlated with Bond Yields and inversely correlated with Bond Prices.

To keep up with the changing dynamics and opportunities in intermarket relationships, please check out our “Weekly Intermarket Technical Report” which specifically covers the monthly, weekly, and daily timeframe charts of the following market indexes:  10-Year T-Notes, S&P 500, Gold, Crude Oil, and the US Dollar Index.

Corey Rosenbloom, CMT


7 Responses to “Intermarket Returns YTD Plus Comparison Graphs”

  1. Bob Says:

    Nice overview!

    A few comments / observations… 1.) It's surprising oil has been the leader; maybe an effect of greatly inflated oil prices lagging the economic downturn for several months. 2.) the 10 year Treasury Note price probably diverges from its more normal inverse relation with the US dollar due to Federal Reserve intervention and artifically low rates deployed to stimulate the economy 3.) is it economic strength depressing the dollar, or the weak dollar stimulating the economy; which came first, the chicken or the egg?

  2. Name Says:

    Maybe your statement that *generally* the dollar is inversely correlated with 10-Year Note prices is correct, I don't know. But the current $-Bond picture tells me the opposite: IMHO, the red box is way to small and should stretch from its left border (actually even from left of its left border) all the way to the right hand side picture border. More-over, bond and $ prices are in sync at the left hand side of the picture and -all be it a small stretch- both prices are in sync in between the november and march lows. Is it not logical, that a strengthening $ causes the bond prices to rally as empirically strength in the $ causes stock-prices to drop (and the money flowing into bonds)?
    So what the given picture suggests to me, is that *generally* the US Dollar Index is positively correlated with Bond Prices (and -thus- inversely with Bond Yields). Only in the aftermath of (lagging) the two stock market lows were they inversely correlated. But of course I may not understand the mechanism.

  3. Corey Rosenbloom, CMT Says:

    You're right on. Take a look at virtually the entire period from 2000 to 2001 – both rose throughout that first year of the bear market. For the most part, with the exception of part of this year, they have been roughly (loosely) inverse as a whole.

    I made a screencap that I may try to use in a future post, but I didn't want this one to get too long:

    This shows the relationship since 2000.

    Agreed – the above rectangle should stretch farther, though. Both have a similar looking 5-wave downward (Elliott) structure which interests me.

  4. Corey Rosenbloom, CMT Says:

    Thanks Bob!

    I know – it surprised me to see it as well. Oil bottomed in Dec/Jan and has rallied very solidly while the market took a dip into March that it had to overcome. I think oil was beat pretty bad in 2008 and had to rally to get back to equilibrium.

    I think you're right about the divergence and intervention – the Fed is monkeying with long-standing relationships! But buying treasuries will certainly have an effect on prices, that's for sure.

    In this environment, a weaker dollar has been associated with a rising stock market and a stronger dollar with a weak stock market. Take a look at the October 2008 stock plunge – look at the dollar's strength.

    It feels bad to 'wish' for a weaker dollar, but recently, it's been correlated with a stronger stock market so….

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