Intermarket analysis

Definition

Intermarket analysis reads each market through its neighbors: bonds, stocks, commodities, and currencies as one linked system whose relative movements carry regime information no single chart shows. Murphy’s 1991 framework codified the classic linkages — rates lead stocks, the dollar drives commodities inversely, commodity trends feed inflation and thus rates — and its central practical claim survived translation into this KB’s macro pillar: CROSS-ASSET CONFIRMATION AND DIVERGENCE is real information. Its central hazard is also documented: the linkages are REGIME-DEPENDENT, not constants — the stock-bond relationship Murphy wrote as typical inverted for two decades, then flipped back in 2022.

How it works / structure

• The classic linkage map (labeled, with regime caveats): bonds→stocks (rate discounting — direction depends on the inflation-vs-growth driver, the Campbell-Pflueger-Viceira formalization, regime-rate-environments); dollar→commodities (pricing-denominator inverse — documented, with episode exceptions, ext-fx, ext-commodities); commodities→rates (inflation transmission); yield-curve→financials/cyclicals (sector rotation reads, strategy-sector-rotation).
• The confirmation/divergence method (the durable export): a move unconfirmed by its linked markets (equity rally with credit spreads widening; commodity breakout without currency cooperation) carries lower documented persistence — cross-asset gates as trend- quality filters (the platform’s implementation: regime features from bond/FX/commodity series feeding equity strategy gates).
• The regime-dependence correction (the modern form): every linkage is CONDITIONAL — the stock-bond correlation’s sign follows the inflation-vs-growth dominance (episode-rates-shock-2022 is the KB’s exhibit); intermarket analysis done honestly is regime classification first, linkage reading second; done naively it applies 1980s constants to a different machine.
• The instrumentation: ratio charts (stocks/commodities, growth/value), rolling cross- correlations with regime conditioning, and relative- strength matrices across asset classes — all engine-computable from the platform’s series.

When it applies

Regime classification (the cross-asset dashboard IS the macro lens’s technical instrumentation — lens-macro); trend-quality gating (confirmation filters on single-market signals); sector-rotation timing (curve and commodity reads feeding strategy-sector-rotation); divergence alerts (cross-asset non-confirmation as an early-warning feature — documented at major turns, with base-rate honesty about false alarms).

Risk profile & failure modes

• Constant-linkage assumption (the signature failure): trading yesterday’s correlation regime — the 2000s commodity-equity relationship died with its regime; conditioning is mandatory, not optional.
• Story-completion risk: four linked markets furnish narrative material for any thesis — intermarket “confirmation” cherry-picked post-hoc is bias-anchoring with more charts.
• Lead-lag instability: which market leads varies by regime and era (documented in the correlation literature) — fixed lead-lag rules decay.
• Aggregation masking: index-level linkages hide sector-level opposites (energy stocks vs long- duration tech in an oil shock) — resolution matters.

Evidence & limits

Murphy (1991) is the framework codification (labeled practitioner); the regime-dependence of cross-asset relationships is peer-reviewed (Campbell-Pflueger-Viceira); confirmation/divergence value is documented directionally in the trend literature with implementation-specific results. The platform carries intermarket reads as conditional features, never as constants.

Falsifiable-thesis examples

Illustrations only, not signals:

• “Equity breakouts confirmed by credit (spreads tightening) persist at higher rates than unconfirmed breakouts (confirmation-gate test)” — falsified by the paired persistence statistics.
• “The stock-bond correlation’s sign tracks the inflation-dominance indicator with under one quarter’s lag (regime-conditioning check)” — falsified by the paired series.

Cross-references

• The regime machinery: regime-rate-environments, lens-macro, episode-rates-shock-2022
• The linked markets: ext-bonds-rates, ext-commodities, ext-fx
• The rotation consumer: strategy-sector-rotation
• The confirmation ancestor: ta-dow-theory