Coincidentally, the launch of stock index futures in 1982 coincided with the start of a two-decade long bull market in stocks. Financial futures contracts allowed futures traders to profit from bull markets in bonds and stocks. It wasn’t until 2002 that commodities began another bull run that lasted through most of that decade as stocks entered another lost decade.
My experience as a futures trader led me to a new field of analysis during the 1980s, which is now called intermarket analysis. For the first time in history, futures traders were able to trade the four main asset classes, which included bonds, stocks, commodities and currencies. It didn’t take long to notice that those four asset classes, which used to be looked at separately, actually fed off one another. A whole new way to look at the markets began to evolve. The development of intermarket analysis over the last four decades closely parallels the development of the futures industry. The price discovery mechanism of the futures markets provided the catalyst that sparked the growing interest in and awareness of interrelationships that exist among the various asset classes.
My first book on intermarket analysis was published in 1991 and a second one in 2003. My third one entitled Trading With Intermarket Analysis (John Wiley) is scheduled for publication later this year. The entire intermarket approach is based on the observation that the four asset classes have an impact on each other and need to be analyzed together. One of the main intermarket principles is that commodity prices and the dollar trend in opposite directions. A peak in the U.S. Dollar Index during 2002 helped launch a major bull market in commodities that lasted until mid-2008 when the dollar bottomed. Commodities were in fact the strongest performing asset class in the decade after 2000. Largely for that reason, commodities are now considered to be a separate asset class that offers a viable alternative to stocks and bonds (as do managed futures). The availability of commodity exchange traded funds (ETFs) over the last decade has also made commodity markets more available to the investing public. It’s as easy to buy a commodity ETF as it is to buy a common stock on a stock exchange. Greater participation by the investing public, who may have shied away from commodity futures in the past, has now increased the demand for those same commodities.
The futures industry has come a long way during the forty years since 1972. It’s reassuring to know that Futures Magazine has been there during the entire time to describe those changes and to help make sense out of them. And it’s still doing it today. After 40 years, you’re still fabulous. Happy birthday.