Quad-Market Performance and Relationships for 2009

Jan 2, 2010: 7:55 PM CST

Let’s take a quick end-of-year look at the major Quad-Markets – Bonds, Stocks, Commodities, and the US Dollar Index – to see both the relationship and performance in 2009.

Don’t we wish we had this graph in front of us as we started last year!

From StockCharts.com’s PerfChart data, we see the following returns for 2009 for the broad market indexes:

$CRB – Commodity Index (blue):  Up 20%
$SPX – S&P 500 stock market (red):  Up 20%

$USD – US Dollar Index (green):  Down 5%
$USB – 30-Year Treasury Bonds (pink):  Down 15%

Stocks and Commodities Investors outperformed Bond Investors, which is often the case as stocks bottom ahead of an economic turnaround, and the stock market often rallies the most at the start of a new trend, outperforming safer investments by wide margins.

Commodities such as Gold ($GOLD) and Crude Oil ($WTIC) were also big benefactors of the economic turnaround in the latter part of 2009, rallying sharply together with stocks (almost non-stop) off the March 2009 bottom.

The other two ‘related’ markets for 2009 were the US Dollar Index and Long-term Bonds, which traded in line with each other (positive correlation) and opposite stocks and commodities (inverse correlation).

Market relationships shift over time, but the story was consistent through the majority of 2009, with the Dollar and Bonds serving as a ‘safe haven’ that proved unnecessary as stocks and commodities continued an impressive ‘creeper’ rally for almost 9 solid months.

The Bond/Dollar positive relationship is sharply diverging currently, or at least in December 2009.  Keep an eye on this to determine if this is a short-term blip or the start of something larger.

Also watch the relationship between the Dollar along with Stocks and Commodities, as end-of-year strength in the Dollar Index (a basket of foreign pairs with the US Dollar in FOREX terms) did not translate into weakness in stocks and commodities as many expected.  Again, let’s see if this is a short-term blip or something major.

As always, even if you don’t trade other markets (if you are just a stock trader), it can be helpful to assess broader themes such as risk aversion vs risk avoidance (safety) which can often be seen in the bond/stock relationship.

Turns in one market should be accompanied with turns in related markets, so use that as cross-checks.

Otherwise, as we begin 2010, continue watching the “Quad-Markets” for any clues you can pick-up on the broader current of macro-investing.

Keep up with opportunities and changes in inter-market trends/structure by subscribing to our Weekly Intermarket Reports.

Corey Rosenbloom
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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