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The financial markets are constantly moving. It’s a dynamic environment where nothing operates in isolation. Everything is interconnected. We may not always understand what the market is doing, but it’s crucial to understand what it should be doing, or even better, what it is about to do.
Intermarket analysis focuses on the correlations between different market categories. Bonds, stocks, commodities, and currencies or Forex. It relies both on Technical Analysis and Macroeconomic Analysis. This methodology allows identifying patterns of leadership and lag among the stock markets, which can be an early indicator of changes in global economic trends.
An increase in commodity prices can indicate a future rise in inflation or simply, alter the expectations about it. This situation will have an impact on interest rates and consequently, on the bond, stock, and currency or Forex markets. A market analysis, trading strategy, and finally, the creation of an investment portfolio must include a comprehensive analysis, at a global, geographical, and category or types of assets level.
The universal variable that triggers these relationships are interest rates. They are the engine behind capital flows and the link between all asset categories globally. Therefore, Intermarket analysis provides a holistic and comprehensive perspective that helps investors better understand the global financial landscape, identify risks, opportunities, and make more informed investment decisions.
An ideal trading strategy cannot exclude this analysis in its design and subsequent formation of an investment portfolio. Today, ETFs provide us with the ideal vehicles to analyze any stock market in any nuance. By size, by category, by geographic location, by type of assets, and even by economic sector. They and the futures market will be our informational support.
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