Bob Dylan says in “The Times They Are A-Changin’”:
“There’s a battle outside and it is ragin’
It’ll soon shake your windows and rattle your walls
For the times they are a-changin’”
Marketplace history of course is not marketplace destiny, whether for one financial realm or the relationships between assorted domains. Although traditions and the analytical time horizon and the scope of allegedly relevant variables remain critical, the cultural past in its major fields such as economics and politics need not repeat itself, either completely or even partly. Yet sometimes current and potential economic and other cultural situations apparently manifest sufficient important similarities to “the past” so that many observers can perceive patterns helping to explain “the present” and to forecast future probabilities. Thus from the standpoint of many subjective perspectives, marketplace history (like other history) often does recur to a substantial extent. Such alleged historical similarity, as it is not objective (scientific), also consequently permits a great variety of competitive storytelling about it.
The 2022 landscape for the United States dollar, the US Treasury 10 year note, commodities “in general”, and the S+P 500 resembles that of around early 2020. The United States dollar currently hints that it may have established an important peak or that it will soon do so. The real Broad Dollar Index’s height (see the Federal Reserve Board, H.10) borders its March/April 2020 highs. Arguably commodities in general began a notable decline in early 2022. Using the broad S&P GSCI as a benchmark, the spot/physical/cash (as well as the nearest futures continuation) commodities complex (including the key petroleum arena) peaked in early January 2020 alongside a strengthening US dollar. A pattern of increasing US Treasury yields (take the 10 year note as the signpost) preceded the early 2020 stock pinnacles (S+P 500 on 2/19/20; emerging marketplaces in general on 1/13/20) as well as the commodities one. Marketplace chronicles unveil a significant yield increase in the UST 10 year note (and other important debt security benchmarks) prior to (and following) the S+P 500’s very significant high (perhaps a major top) 1/4/22 at 4819. As in 2020, the 2022 highs in stocks and commodities entangled with both rising yields and a strong dollar.
In summary, although their future levels and trends admittedly are cloudy and uncertain, what are probable trends for these marketplaces? The United States real Broad Dollar Index probably has attained its pinnacle or will do so in the near future. Commodities in general (spot; nearest futures basis) probably made a major high in early March 2022 and will continue to retreat. Although it is a difficult call, the S+P 500 likely peaked in January 2022, and it probably will venture beneath late February 2022’s 4115 low. Over the long run, given the American (and global) inflation and debt situation, the yield for the US Treasury 10 year note will ascend above its recent high around 2.55 percent, although occasional “flights to quality” and thus interim yield declines may emerge.
Arguments in marketplaces and elsewhere in cultural life that “this time is different” are inescapable and often persuasive. Of course the coronavirus pandemic played a major role in the first quarter 2020 collapse in global stocks and commodities. However, the rising interest rates and strong dollar variables still played an important part in those 2020 marketplace declines. And the American and international inflation and debt troubles of 2022 (“nowadays”) far exceed those existing around January 2020. The Russian invasion of Ukraine obviously makes aspects of the recent commodities situation different from 2020; global petroleum prices, for example, though “high” prior to the Russia/Ukraine conflict, probably would not have skyrocketed in its absence. And in regard to historic and potential future marketplace relationships and related risk assessments, we should not forget 2007-09, the ending of the Goldilocks Era and its dismal aftermath, the global economic disaster. The S+P 500’s summit (October 2007) diverged for several months from the peak in commodities in general (July 2008), although the trends of those two financial sectors thereafter converged. Also, as US and other stocks began their terrifying descent in spring 2008 until March 2009, the dollar rallied.
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Marketplace Trends and Entanglements (4-4-22)