Intermarket Analysis

The 2021-2022 episode illustrates Murphy's intermarket model — provided it is read in two stages, because commodities play two successive roles in it.

Phase 1 (2021): commodities give the signal. Prices surge through the year (WTI crude moves from roughly $48 to $75 a barrel, the CRB index gains nearly 40%) while US inflation climbs from 1.4% to 7%. In line with the chain described in the key points, bonds react next: long yields rise in waves from 2021 onward, the Bloomberg US Aggregate ends the year already in the red, and in late November the Fed drops the word "transitory".

Phase 2 (2022): tightening changes the roles. The S&P 500 peaks as early as 3 January — so the bond signal's real lead time was measured in weeks to a few months, not quarters; reading bonds still had value after the peak, since the equity decline ran on until October (−25% at the low). The Fed raises rates by 425 basis points over the year, the US 10-year goes from 1.5% to 4.2% at the October peak, and the Bloomberg US Aggregate posts one of the worst years in its history (−13%). The dollar soars (DXY up 19% at the September peak, +8% on the year) and commodities then switch sides: the inflation signal of 2021 becomes the dollar's victim — crude falls back to around $80 after its March peak at $130, copper loses 13% on the year, emerging markets (MSCI EM) 20%. Gold, for its part, finishes almost unchanged (~$1,829 → $1,824, −0.3%): holding its ground against a dollar that strong is the demonstration of the dual nature described in the key points — a commodity penalised by the greenback, but a haven sought out amid uncertainty.

The model's sequence — commodities, then bonds, then equities, with the dollar as amplifier — did play out, but spread across two years rather than in a single cascade. What remains is the instructive anomaly of 2022: equities (S&P 500 −19%) and bonds fell together. That positive correlation breaks with the "frequently negative" regime installed after 2000 — it is, for the duration of an inflation shock, a return to the regime that prevailed before 2000 (see the vocabulary: positive correlation from 1960 to 1997). The lesson is Murphy's own: correlations depend on the dominant regime. Under deflation (2000-2003), bonds rise when equities fall — the decoupling described in the key points; under inflation (2022), the same variable, interest rates, strikes both markets at once, and equities and bonds move together again.

Murphy treats intermarket analysis as the final stage in the training of a complete technical analyst, and his substantive recommendation is never to analyse one market without watching the other three asset classes. A modern application of his method: build a daily dashboard containing the S&P 500 (equities), TLT (long-term bonds), DXY (dollar), GLD (gold), the CRB Index (commodities) and the VIX (volatility). That precise list is not Murphy's — the TLT (2002) and GLD (late 2004) ETFs postdate or coincide with his books — but the spirit is his: like a pilot sweeping the instrument panel, an analyst who reviews these six dials each morning gets an overview of the forces in play before zooming in on any individual market.