Inflation trade continues

Many of the posts on this blog have been covering the inflation theme. Both trend and momentum have been telling us to be long value & commodity stocks (energy, materials, banks, and Canada).

My asset/sector leadership board continues to be dominated by these sectors while growth/tech sectors have fallen by the wayside.

After such large moves in commodities and banks, it’s natural to wonder how much more juice is left for this trade. In this post, I want to show that this inflation theme could continue for a while longer.

Inflation

In recent months, 2 different inflation metrics have made a 6-year breakout. The first chart is the RINF ETF which tracks 30-year inflation breakeven, and the second is the GLD/TLT ratio.

Bonds

Consistent with higher inflation, TNX (10-year US treasury bond yield) is setting up for another leg higher on the weekly chart. This should continue to boost value stocks, especially banks.

And the TNX monthly chart shows there’s strong 10yr support at the 1.4% level.

Inflation-protected bonds have broken out, as inflation expectations have been rising faster than nominal bond yields.

Commodity Stocks

Below are weekly/monthly charts for steel, copper, oil & gas, and uranium stocks. These areas have only recently come out of large multi-year bases. Some are also making fresh breakouts from multi-month consolidations.

Canada

Canada’s TSX index consists mostly of financials & resource stocks. Here’s EWC just coming out of a 14-year base.

The XDV dividend ETF made a 6-year breakout.

Finally, here’s the Canadian dollar which is linked closely to copper and oil. It’s making a 6-year breakout as well.


Important DisclaimerThis blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.