Founder’s Note: Sam Gatlin is a big asset behind the scenes and on screen here at TrendLabs.
He’s a quick learner, he’s a great mentee, and he’s always ready to share something interesting on Saturday morning.
Here’s Sam with timely thoughts on energy and inflation… – JC
By Sam Gatlin
There are certain moments in markets where everything feels calm on the surface… but underneath, something much bigger is building.
Not the kind of volatility you see day to day.
Not the noise that dominates headlines.
The kind of pressure that builds slowly and quietly… until it starts showing up everywhere all at once.
I think that’s where we are right now.
Because while most investors are still anchored to the idea that inflation is behind us, the market is starting to tell a very different story.
And this time, there’s a catalyst.
The Iran war didn’t create inflation.
It accelerated it.
It poured gasoline on a fire that was already smoldering beneath the surface.
Energy markets are tightening, supply chains are getting stressed again, and the price of the most important input in the global economy is surging higher.
That’s not something policymakers can easily control.
It’s much bigger than any government.
The genie is out of the bottle.
And when that happens, it doesn’t go back in quietly.
It spreads and eventually shows up everywhere.
If you know where to look, you can already see it happening.
Energy Is Breaking Out
Start with crude oil futures.
We’re looking at a market that has spent years digesting a historic run off the 2020 lows.
And now the bulls are decisively back in control:
Not only that, but the commodity just posted its best quarter of the 21st century.
That’s not normal behavior…
That’s what I call an initiation thrust, and we’ve seen this before.
In Q2 of 2020, crude rallied about 80% in a single quarter.
That wasn’t the top… not even close.
It was the beginning.
What followed was a move of more than 200%.
That’s how these things tend to work.
Big moves begin with big moves.
Commodities Are Confirming the Move
And it’s not just energy.
Our custom equal-weight commodities index is breaking out to new multiyear highs:
This shows that there’s broad participation across the entire complex.
Metals, agriculture, energy… nearly everything in the commodities complex is starting to move together.
That’s how inflationary regimes begin.
Not with headlines, but with price.
When commodities move as a group, it tells you this isn’t about one isolated shock.
This is something bigger and more structural.
Inflation Expectations Are Turning Higher
Now look at inflation expectations.
The 5-Year Breakeven Inflation Rate has spent years building a base, and now it’s starting to turn higher again:
That’s the bond market speaking, and it carries the most authoritative voice in the market.
We’re already seeing inflation forecasts move higher as a result of the surge in energy prices.
In other words, astute investors are taking notice that inflation isn’t under control.
Why Bonds Are Next
When inflation expectations rise, bond prices fall, and yields rise.
We’re already seeing that relationship play out.
Energy stocks are breaking out to new all-time highs relative to bonds.
At the same time, long-term yields are flirting with the resolution of a multiyear consolidation, which comes in the context of a strong primary uptrend:
This is the classic sequence: Energy leads, commodities confirm, inflation expectations rise, and bonds get hit.
A move in energy like this doesn’t stay contained.
It’ll work its way through transportation, logistics, wages… and eventually into the entire economy.
And this will keep rates higher for longer. Much longer.
This Is How an Affordability Crisis Begins
Rising yields don’t just impact portfolios.
They impact everyday life.
Higher rates mean higher mortgage payments, higher car payments, and higher credit card interest.
At the same time, rising energy prices push up the cost of transportation, food, and just about everything else.
You’re getting squeezed from both sides.
The cost of living is rising, and the cost of money is rising.
That’s not just inflation.
That’s an affordability crisis, and it doesn’t hit all at once.
It’ll build slowly… then suddenly, people will start to feel it.
And by the time it becomes obvious, the damage is already done.
What I’m Doing About It
Most investors aren’t positioned for that environment.
They’re still anchored to low inflation and cheap money.
But if these trends continue, that playbook stops working.
Because in a world of rising inflation and rising yields, the winners change.
And the consequences go far beyond markets.
If this is the environment we’re entering, then the only thing that matters is being positioned on the right side of it.
That’s exactly why we built the Chaos Cycle portfolio for Primary Trend members.
It’s a curated list of stocks already benefiting from these trends.
The ones that institutions are quietly accumulating while everyone else is still looking the other way.
Because when the narrative shifts… price has already moved.
If you want to be early instead of late, that’s where I’d start.
Stay sharp,
Sam Gatlin
Analyst, TrendLabs