Intermarket Analysis

This means that the continuation of the current housing boom may be heavily dependent on interest rates staying low.

The U.S. economy had suffered four recessions since 1970. Three of the four—those that took place in 1974, 1980, and 1990—were accompanied by surging oil prices. Nine years later, surging oil prices in 1999 contributed to the onset of another recession and, in the process, helped burst the bubble in the Nasdaq market.)

This action had a subtle but negative effect on the stock market, particularly on old economy stocks that are traditionally more affected by interest rate direction. New economy technology stocks proved relatively immune to rising rates in 1999—but not in 2000.

While economists were looking at inflation in medical costs and college tuition, American companies were being bled by deflation in manufactured goods.

That carried good news for the market. That’s because leadership by small caps and technology is a sign of market strength.

there has usually been a fairly close correlation between bond prices and the AD line.

Rising oil prices have contributed to virtually every U.S. recession in the last forty years.

(The negative influence of rising commodities on stocks holds true during inflationary and disinflationary periods—but not necessarily during a deflation. In a deflation, rising commodity prices are generally positive for stocks.)

Warnings came from sector rotations out of late expansion stocks into early contraction stocks.