The Other Rally Killer: Commodities, Or How the Bear Plays Out

The Federal Reserve cannot really ease until oil peaks. My current thinking is as follows.

1. Crude comes down

2. Fed turns dovish in July, possibly with 25 bps hike or puts pause on table for September

3. Stocks finish their rally if still going, or bounce again

4. Crude oil starts rising too

5. Federal Reserve is backed into corner when "inflation" reaccelerates

The Federal Reserve has no answer for an economy that demands more energy and materials, for whatever reason. If capital reallocates from "tech" to "commodities" then the CPI goes up. The wildcard is Ukraine. The developed markets created a self-inflicted commodities embargo with their Russia sanctions. They can undo this at any time and alleviate pressure. That is the last outlier risk, it would be the last leg of any rally and trigger a low in commodities.