Intermarket Analysis: How Markets Connect
Intermarket analysis studies the relationships between stocks, bonds, commodities, and currencies — revealing how moves in one market ripple across all the others.
Intermarket Analysis: How Markets Connect
Markets don't move in isolation — bond yields drive the dollar, the dollar drives commodities, commodities drive inflation, and inflation drives bonds. Intermarket analysis reveals the connections.
A stock trader who ignores bonds is flying blind. A commodity trader who ignores the dollar is trading with one eye closed. Intermarket analysis is the practice of studying how asset classes interact — and it's the framework every macro trader uses.
What is intermarket analysis?
Intermarket analysis examines the relationships between four major asset classes:
- Stocks (equities)
- Bonds (fixed income)
- Commodities
- Currencies (FX)
Pioneered by John Murphy, the approach is built on a simple truth: capital flows between markets constantly. A rally in bonds often drains money from stocks. A surging dollar often crushes commodities. These relationships create tradable patterns.
The classic intermarket relationships
Bonds vs stocks
- Normally inverse — when bonds rise (yields fall), stocks often fall, and vice versa
- In deflationary periods — bonds and stocks can rise together (falling rates boost both)
- In inflationary periods — bonds and stocks can fall together (rising rates hurt both)
USD vs commodities
- Strong inverse — commodities are priced in dollars
- Strong dollar = lower commodity prices
- Weak dollar = higher commodity prices
- See our DXY guide
USD vs stocks
- Generally inverse for US multinationals — strong dollar hurts foreign earnings
- Risk-off periods — both can rise together (dollar as safe haven)
Commodities vs bonds
- Inverse — rising commodities signal inflation, pressuring bonds
- Falling commodities = lower inflation expectations = bond-friendly
Commodities vs stocks
- Mixed — commodity producers benefit; commodity consumers suffer
- Rising oil helps energy stocks, hurts transports and consumers
- Rising copper signals growth (bullish stocks)
The intermarket rotation framework
| Economic phase | Bonds | Stocks | Commodities | USD |
|---|---|---|---|---|
| Deflation / recession | Up | Down | Down | Up (safe haven) |
| Early recovery | Up | Up | Flat | Mixed |
| Mid expansion | Down | Up | Up | Down |
| Late cycle / inflation | Down | Mixed | Up sharply | Down |
| Stagflation | Down | Down | Up | Mixed |
How traders use intermarket analysis
Confirmation
- If stocks make new highs, bond yields should rise and dollar should weaken
- Divergence (stocks up, yields down) often signals a coming reversal
- Use intermarket to confirm your primary thesis
Warning signals
- Stocks rising while copper falls → growth may be slowing
- Gold rising while yields rise → inflation fear
- Dollar rising while stocks fall → risk-off rotation
- VIX rising while stocks fall → volatility regime shift
Sector rotation
- Rising rates favor financials (wider margins)
- Falling rates favor utilities, REITs (yield plays)
- Rising oil favors energy
- Falling dollar favors exporters and multinationals
Practical intermarket setups
Inflation trade
- Long commodities (gold, oil, copper)
- Short bonds (long yields)
- Long commodity currencies (AUD, CAD)
- Short USD
Deflation / risk-off trade
- Long bonds (short yields)
- Long USD
- Long gold (safe haven)
- Short stocks and commodities
Reflation / early-cycle trade
- Long stocks (cyclicals)
- Long copper
- Short bonds
- Long emerging markets
Key indicators to track daily
| Indicator | What it tells you |
|---|---|
| 10-year Treasury yield | Cost of capital, growth expectations |
| DXY | Dollar strength, risk sentiment |
| Gold price | Inflation, fear |
| Copper price | Growth outlook |
| Oil price | Inflation, demand |
| VIX | Volatility regime |
| S&P 500 | Risk appetite |
Tip: Build a daily dashboard with these seven indicators. Their relationships tell you which regime the market is in.
How to start with intermarket analysis
- Track the four asset classes daily
- Look for divergences between them
- Identify the current regime (inflation vs deflation, risk-on vs risk-off)
- Position trades aligned with the regime
- Watch for regime shifts — when relationships break
Common mistakes
- Looking at one market in isolation
- Assuming relationships never change (they do — inflation regime shifts break them)
- Forgetting lags — bonds often lead stocks
- Confusing correlation with causation
- Ignoring the dollar's role as the global denominator
When relationships break
Classic intermarket relationships can break temporarily during:
- Liquidity crises — everything sold together (March 2020)
- Regime shifts — deflation to inflation or vice versa
- Policy shocks — quantitative easing distorts normal flows
- Currency interventions — central bank moves override fundamentals
When normal relationships break, pay attention — something important is happening.
Bottom line
Intermarket analysis is the macro trader's master framework. No market moves alone — every asset class is connected through rates, currencies, and capital flows. Build a daily dashboard of the four asset classes, watch for divergences, and you'll see the market's hidden wiring that single-asset traders miss.