In fact, we’re now in an everything-over-bonds environment as rates continue to rise.
Looking for an uptrend?
Just place US Treasury bonds or the Japanese yen in the denominator, and voila!
I consider the commodity-versus-bonds ratio one of if not the most important high-level intermarket ratio in our deck.
Why? Because it reveals the inflationary backdrop that colors the entire market, determining secular leadership between asset classes and US stocks.
And it’s hinting at the next trend in relative strength…
Check out the commodity-versus-bond ratio, as measured by the relationship between the CRB Index and 30-year Treasury bond futures:
Notice the ratio peaked in 2008 during the Global Financial Crisis and turned lower until the pandemic selloff of 2020.
Disinflation defined that decade as interest rates fell, and growth over value became a rule of thumb.
That former trend of bonds over commodities no longer exists. Instead, commodities have turned the table, violating a decade-plus downtrend line relative to bonds.
Commodities – energy in particular – have now joined the conversation after more than a decade of sitting on the sidelines.
Fast-forward to today, and this crucial ratio looks poised to rip higher after almost 18 months of consolidation.
An upside resolution favors a stock market rotation down the cap scale into cyclical sectors.
