Market Narratives: Commodity vs. Dollars | Cyclicals vs SPY
Commodity vs. Dollar (Bearish Narrative)
The US dollar is 2021 has been blazing its own trail, trending positively even though inflationary pressures should be eating away at its value. It doesn't make much sense for commodities and dollars to go up at the same time. When they move together; they usually move downward together. As the dollar gains value, more commodities can be bought for less dollars.
When the US dollar finds a bottom that will lead to commodities eventually topping. Did Economic Growth top out when the dollar bottomed? Commodity bulls need the dollar to start trending downward and break the previous lows. If the dollar keeps chugging higher it won't be long until commodities lose their luster. When the dollar and yields top; we will have a market bottom.
Cyclicals vs. SPY (Bullish Narrative)
Cyclical stocks provide goods that are higher in demand when the economy is growing. Energy and Financials are two sectors in particular that do well with higher rates. Energy stocks profit when the economy is running on all cylinders and need there is a high demand for energy to sustain high economic growth. Financials in particular love higher interest rates because they receive more money from loaning money.
The chart shows (XLEnergy+XLFinancial)/SPY. As you can see this ratio has not trended upward since 2008 however, now it looks primed for another move higher. This looks like an incredibly bullish chart however, one needs to realize that energy stocks in particular have already had huge moves and are approaching levels of resistance.
The US dollar is 2021 has been blazing its own trail, trending positively even though inflationary pressures should be eating away at its value. It doesn't make much sense for commodities and dollars to go up at the same time. When they move together; they usually move downward together. As the dollar gains value, more commodities can be bought for less dollars.
When the US dollar finds a bottom that will lead to commodities eventually topping. Did Economic Growth top out when the dollar bottomed? Commodity bulls need the dollar to start trending downward and break the previous lows. If the dollar keeps chugging higher it won't be long until commodities lose their luster. When the dollar and yields top; we will have a market bottom.
Cyclicals vs. SPY (Bullish Narrative)
Cyclical stocks provide goods that are higher in demand when the economy is growing. Energy and Financials are two sectors in particular that do well with higher rates. Energy stocks profit when the economy is running on all cylinders and need there is a high demand for energy to sustain high economic growth. Financials in particular love higher interest rates because they receive more money from loaning money.
The chart shows (XLEnergy+XLFinancial)/SPY. As you can see this ratio has not trended upward since 2008 however, now it looks primed for another move higher. This looks like an incredibly bullish chart however, one needs to realize that energy stocks in particular have already had huge moves and are approaching levels of resistance.