First, I must preface everything I am about to write by stating I am not an economist.
With that said, the charts tell a price story, and from interpretation of price, one can come up with a narrative.
This is my narrative as of right now, although I have talked about stagflation for years.
The chart above is of the Goldman Sachs Commodity Index.
I snapped the price action going back to February 2024.
While the index seemingly peaked in April 2024, we also see its nadir in September.
At that point the talk was about soft landing, growth stocks ruling, and commodities disinflating.
Now, the price action for starters has gotten way more volatile.
More importantly, the price at the beginning of 2025, is now rising.
Also, our Real Motion Indicator shows the index gaining momentum.
And the Leadership indicator (not shown) has it showing the index OUTPERFORMING the SPY since mid-December and now, way more so.
The phase is accumulation as the 200-DMA remains above the 50-DMA. Does that matter?
Only insofar that should we get a golden cross, we would have a bullish phase in the commodities index for the first time since September 2022. The slope on the 50-DMA back then was downward.
The slope today is pointing up.
Furthermore, with this recent rise in yields, we look at a chart of the Federal Funds Rate.
The first thing I see is that the yields have declined since their peak (just under 5.0) in early 2024.
Of course, we have seen interest rates drop 1.00 since then.
Now, the FF rate is priced at 4.70.
Again, I am no economist, but if the yields peaked and commodities index price rises, what are some conclusions early on?
- If the Federal Reserve stays pat, commodities already somewhat immune, can continue rising. However, equities want lower rates so at this point, stock market gains can be muted.
- Commodities prices rise more, and the Fed raises rates. This scenario, while a possibility, seems unlikely as that will not be received well by the markets and might not be enough to control commodities prices regardless.
- The Fed goes ahead with lowering rates, the least likely scenario right now, but the economy sputters and they choose to ease rather than stay put or tighten. Of course, this might help areas of the market and would definitely goose inflation.
If we did not see energy , gold , silver , miners , soybeans , corn all heading higher right now, we could say that the economy is strong, and everything well be just fine (soft landing).
And granted, it is too early to say for sure.
But, if stagflation is a thing for 2025, then the Fed will have a real pickle, and commodities can shoot a lot higher while the market can have a much bigger sell-off.
This is an armchair economist’s point of view based on highly experienced technical analysis. Which means, as charts change, strategy also changes.
ETF Summary
(Pivotal means short-term bullish above that level and bearish below)
- S&P 500 (SPY) Sitting right at December lows ahead of CPI PPI
- Russell 2000 (IWM) Weekly chart ok but the 200-DMA at 215 close
- Dow (DIA) Broke December lows with 410 the 200-DMA to hold
- Nasdaq (QQQ) First break of the 50-DMA since September 2024
- Regional banks (KRE) Under 55 we get concerned. Over 60, relax
- Semiconductors (SMH) 237 is our big line in the sand
- Transportation (IYT) While under resistance at 70, still holding-watch
- Biotechnology (IBB) its 130 or bust
- Retail (XRT) Under December lows and has to hold around 76
- iShares iBoxx Hi Yd Cor Bond ETF (HYG) 78.00 key area to hold