Intermarket Analysis: How Stocks, Bonds, Commodities, and Currencies Move Together

The Core Relationships of Intermarket Analysis

The foundation of intermarket analysis is understanding the normal relationships between four major asset classes during different phases of the business cycle. In a typical economic expansion: stocks rise (earnings grow), bonds decline (yields rise as the economy heats up), commodities rise (increasing demand for raw materials), and the currency of the country with the strongest economy tends to strengthen. In a typical recession: stocks fall (earnings decline), bonds rally (yields fall as the central bank cuts rates), commodities fall (demand destruction), and safe-haven currencies (USD, JPY, CHF) tend to strengthen. These relationships are not static — they shift depending on whether the economy is driven by demand (normal cycles) or supply (inflation shocks like 2021-2022). The key skill in intermarket analysis is identifying the current regime and understanding which relationships are active. Key economic indicators to watch →

Stocks and Bonds: The Most Important Relationship

The stock-bond relationship is the most watched intermarket relationship. Normally, stocks and bonds have a negative correlation — when stocks go up, bonds go down (yields rise), and vice versa. This negative correlation makes the 60/40 stock/bond portfolio an effective diversifier. The logic: when the economy is growing strongly, stocks benefit from higher earnings while bonds fall because rising rates reduce bond prices. When the economy weakens, stocks fall while bonds rally as investors seek safety and rates are cut. However, this relationship breaks down during inflationary regimes. In 2022, stocks and bonds both fell because the driver was inflation (a supply shock), not demand. Rising inflation caused central banks to hike rates aggressively, which hurt both stocks (higher discount rates reduce equity valuations) and bonds (higher rates directly reduce bond prices). Understanding whether the economy is in a demand-driven or supply-driven cycle is critical for predicting the stock-bond correlation. During demand-driven recessions (2008, 2020), bonds provide excellent diversification. During supply-driven stagflation (1970s, 2022), bonds fail as a hedge. How bond yields and prices work →

Commodities and the Dollar: The Inverse Relationship

Commodities and the US dollar have a strong inverse relationship — when the dollar weakens, commodity prices tend to rise, and when the dollar strengthens, commodities tend to fall. This happens for two reasons. First, most commodities are priced in US dollars, so a weaker dollar makes commodities cheaper for buyers using other currencies, increasing demand and pushing prices up. Second, the dollar tends to weaken during periods of global economic strength (when commodity demand is high) and strengthen during global weakness (when commodity demand is low). This relationship is most pronounced for oil, copper, gold, and agricultural commodities. In 2022, the dollar strengthened dramatically (DXY rose over 15%), and commodities fell sharply from their mid-2022 peaks despite ongoing supply constraints. The correlation between the Trade Weighted Dollar Index and the Bloomberg Commodity Index is approximately -0.5 to -0.7 over medium-term periods. Introduction to commodity investing →

Gold and Real Rates: The Ultimate Intermarket Signal

Gold has one of the most consistent intermarket relationships: it is inversely correlated with real interest rates (nominal rates minus inflation). When real rates are falling or negative, gold tends to rise. When real rates are rising, gold tends to fall. This relationship exists because gold pays no yield, so its opportunity cost is the yield available on alternative safe assets like Treasury bonds. When real yields are negative (as they were from 2020 to early 2022), gold becomes attractive because holding bonds guarantees a loss of purchasing power. When real yields rise sharply (as they did in 2022-2023), gold becomes less attractive. Gold also has a strong relationship with the dollar — a weaker dollar supports gold, a stronger dollar pressures gold — and with financial stress: during banking crises or geopolitical events, gold often rallies as a safe haven. The gold-real yield relationship broke down somewhat in 2024-2025 as central bank buying created artificial demand independent of traditional drivers, but the fundamental relationship remains one of the most reliable in intermarket analysis. Gold investing strategies →

Putting It Together: The Economic Regime Framework

Intermarket analysis is most useful when it helps you identify the current economic regime. There are four primary regimes based on whether growth and inflation are rising or falling. Goldilocks (rising growth, falling inflation): stocks rally strongly, bonds rally (yields fall as inflation subsides), commodities are mixed, dollar stable. This is the best environment for stocks. Inflation Boom (rising growth, rising inflation): stocks rise initially but peak as inflation accelerates, bonds fall (yields rise), commodities rally strongly, dollar weakens. This describes the 2021 environment. Stagflation (falling growth, rising inflation): stocks fall, bonds fall (both hurt by inflation), commodities may rise initially but eventually fall (demand destruction), dollar may strengthen or weaken depending on relative central bank policy. This describes 2022. Recession/Deflation (falling growth, falling inflation): stocks fall initially then bottom, bonds rally strongly (rates cut aggressively), commodities fall, safe-haven currencies strengthen. This describes 2008 and early 2020. By identifying which regime you are in, you can adjust your portfolio accordingly — overweight stocks and bonds in Goldilocks, overweight commodities and underweight bonds in Inflation Boom, overweight cash and short-duration bonds in Stagflation, and overweight long-duration bonds in Recession. Building a regime-aware portfolio →

What causes stock-bond correlation to change?

The stock-bond correlation changes primarily based on whether inflation shocks or demand shocks are driving the economy. During demand-driven cycles (most of the last 40 years), stocks and bonds have negative correlation because economic weakness hurts stocks but causes rates to fall, boosting bonds. During inflation-driven cycles (1970s, 2022), both stocks and bonds fall together because rising inflation forces central banks to raise rates, hurting both equity valuations and bond prices. The correlation can also shift during crises: in March 2020, stocks and bonds initially fell together (a liquidity crisis) before bonds rallied sharply as central banks intervened. Central bank policy, fiscal policy, and the structure of the economy all influence this relationship. Since 2022, the stock-bond correlation has remained less negative than its historical average, suggesting structural changes in the inflation regime.

How can I use intermarket analysis for trading?

Intermarket analysis provides leading signals for trading. If bonds start rallying (yields falling) while stocks are still falling, it may signal that the central bank will cut rates soon, suggesting a stock market bottom is approaching. If the dollar starts weakening while commodities are bottoming, it may signal a coming rally in commodity stocks. If gold breaks out while real yields are still rising, it may signal financial stress or a regime shift. The key is to watch for divergences: when one market is signaling something different from another market that normally moves with it, that divergence often resolves with a sharp move in one direction. For example, if stocks are rising but high-yield bonds (credit) are weakening, the credit market may be signaling economic stress that stocks are ignoring — a potential sell signal. Traders use these divergences to position ahead of major market moves. The most reliable signals come from watching the relative performance of different asset classes, not just their absolute levels.

What is the relationship between the yield curve and stocks?

The yield curve (the difference between long-term and short-term interest rates) is one of the most powerful intermarket signals for stocks. An inverted yield curve (short-term rates above long-term rates) has historically predicted recessions with remarkable accuracy — every US recession since the 1960s has been preceded by a yield curve inversion. When the yield curve inverts, it signals that the bond market expects economic weakness ahead, which is typically negative for stocks. However, stocks often continue rising for months or even years after inversion — the inversion in 2022 did not lead to a major stock decline until late 2023. The most dangerous time for stocks is when the yield curve un-inverts (steepens) as the Fed cuts rates, which typically coincides with the onset of recession. A steepening yield curve from an inverted position has historically been one of the most bearish signals for stocks. When the curve normalizes, it means the bond market expects the economy to recover — which is bullish over a 6-12 month horizon but can be preceded by a sharp selloff.

How do geopolitical events affect intermarket relationships?

Geopolitical events can temporarily disrupt normal intermarket relationships. A major geopolitical shock (war, sanctions, terrorist attack) typically triggers a flight to safety: stocks fall, bonds rally (flight to quality), commodities spike (particularly oil, gold, and defense-related commodities), the US dollar and Swiss franc strengthen (safe-haven currencies), and emerging market currencies weaken. These moves are typically sharp but short-lived — markets often reverse within days or weeks as the immediate panic subsides. The duration of the disruption depends on the economic significance of the event. The Russia-Ukraine war (2022 onward) caused sustained commodity price spikes and disrupted the normal bond rally during geopolitical stress because it coincided with an inflation crisis. This shows that geopolitical events interact with the existing economic regime rather than overriding it. For investors, the key lesson is to avoid making permanent portfolio changes based on geopolitical events — the most profitable response is often to do nothing and wait for the initial panic to subside.

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