Tidbits
Some random and hopefully interesting economic & financial market relationships.
Just a few random tidbits of interest which I hope you find intriguing.
1. Inflation Fight is Ending?
As demonstrated in charts 1 and 2, all three major financial markets are now signaling that the inflation threat is ending. The Bloomberg Inflation Sensitive Equity Total Return Index is constructed to track the performance of companies with a sector classification of Energy, Industrials, Materials or Real Estate that demonstrate a strong positive correlation with inflation. As shown in chart 1, the relative total return performance of inflation sensitive equities has been declining since the end of March and has reversed more than one-half of its relative outperformance since year-end. The bond market is also clearly suggesting the worst of the inflation is behind us. The bond market’s one-year forward inflation expectation (i.e., the one-year breakeven rate) has collapsed to just 2% -- right at the Federal Reserve’s inflation target and its lowest level since October 2024.
Finally, as shown in chart 2, aggregate U.S. commodity prices have returned to only about 6% above where they were at the end of February – the start of the Iran conflict – leaving commodity prices well within a normal volatility range so far for 2026. All three financial markets indicate the Fed will not need to respond to inflation conditions with higher interest rates. The inflation threat has seemingly been reversed. Indeed, the next move by the Fed may well be an easing should real economic growth slow in the coming months as is my guess.
