Comparison Graphs Of Year-To-Date Returns In Stocks, Commodities And Currencies

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 (^GSPC) and the NASDAQ (^IXIC) 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.

Subscribe by RSS Subscribe by Email