US stocks market vs international markets
When looking at trends in stock markets we need to realize that the stock market consists of thousands and thousands of different stocks and this means that even though the stock index is going in one direction, there’s always a great number of stocks that don’t move at the same time or at the same speed as the average trend. However, all stocks are somewhat influenced by the main trend. And this goes also not only when talking about the stocks in US or also including the other markets (forex, commodities, bonds), but the same is true about the global market – Japanese stock market, British stock market, etc. All these 3 markets tend to trend together – maybe not with the same speed but often at the same time or almost at the same time.
If world bond prices indicate that the prices will be going down then there’s a good chance US bonds will follow. US stock prices are influenced by US bonds which are influenced by global bond markets where inflation and interest rates have an important role. It’s important to observe inflation around the world as the direction of inflation eventually determines the direction of interest rates. And to anticipate global inflation trends we need to study movemetns in global commodity markets.
When comparing global money market indexes, you could compare Wolrd Short Rates, World Stock Index and Economist Commodity Index. When world money market prices are rising, it is usually bullish for global stock prices.
„Money market prices usually lead stock prices at major turning points” – John Murphy, Intermarket Technical Analysis
Stock market stock groups
When previously we have said that all stocks might not often follow the trend at the same time or at the same speed as the trend goes, there are different stock groups that within the group, do often move at the similar time and with the similar speed. Additionally, many stocks or stock groups are tied to specific commodities and usually rise or fall together with that commodity. For example gold mining and energy stocks, silver mining and aluminium. Then there are also stocks that are very sensitive to changes in the interest rates. This group could contain different banks which usually benefits from declining interest rates.
Gold mining share prices often lead the price of gold.
If inflation is increasing, you should think more about inflation stocks. If bond prices are rising relative to commodity prices you should think more about interest-sensitive stocks. Interest-sensitive stocks are closely related to bonds. If CRBindex/bond relationship is getting weaker (declining interest and inflation rates), it might be a good time to buy interest-sensitive stocks. Note that interest-sensitive stocks also tend to lead other stocks and are more connected to bond market than to stock market.