An oversold {inflation minus commodity prices} ratio is good for equities.

Below is a study where I compare the ratio of the U.S. Inflation Rate (YoY) minus the S&P GSCI (Goldman Sachs Commodity Index) represented by the blue line, and when it trades to 2.5 standard deviations below its rolling monthly mean while its Monthly RSI also registered a reading of below 32.

The vertical lines show 8 moments over the past 40 years when that has occurred.

The most recent was only a few months ago.

Those moments also correspond to a longer term advance in the S&P 500, which is illustrated by the orange line.

November 7, 2023

by Rob Zdravevski

rob@karriasset.com.au