US T-bonds are sliding to fresh decade lows. The S&P 500 completed a three-month top last week. And the Nasdaq 100 is on the verge of doing the same.
Those summer highs are receding into the collective memory bank, replaced by new lows and growing unease. Sellers are out in full force.
But instead of allowing the near-term selling pressure and overall choppy conditions to throw us off balance, let’s focus on the one underlying trend tying this market together…
I presented this chart yesterday during the Chart Summit – no markups needed.
For whatever reason, I’ve never shared this chart before. Perhaps I thought it was too obvious. Everybody knows commodities outperform bonds during a rising-rate environment. Right?
Rising interest rates are the market’s “golden thread.” They’re the key theme tying the major asset classes together, pulling price and all of us along with it.
We can use this understanding to approach the markets with clarity and purpose.
What do we want to buy, and what do we want to sell or not buy?
The chart answers that question: If rates are rising, buy commodities and sell bonds.
It makes sense! And energy remains front and center, leaving other commodity subgroups and stock market sectors in the dust.
I know the market can be frustrating, especially now. Failed moves and whipsaws are no fun. But the markets are designed to frustrate us more often than not.
Don’t let the challenging conditions get you down. It’s just part of the game.
Take a deep breath and ground yourself by following the one trend permeating the markets – rising interest rates.
Countdown to FOMC
The market is pricing in a pause in the hiking cycle through Q2 of next year.
Here are the target rate probabilities based on fed funds futures:
