Most investors don’t pay too much attention to the futures markets.  They should.

In 2022, the biggest gains made by portfolio managers were in the futures markets.

Just as an example, Dunn Capital Management, which has been in the business of managing money as a Commodity Trading Advisor for 50 years, generated a 60% return in 2022.

Most of this was likely due to the huge moves in the interest rate markets.

Above is a weekly chart of the March 2023 3 month Eurodollar futures contract.  At the end of 2021, this contract closed at 98.79.  It currently trades at 94.93.

Each .01 tick is worth $25, so you are looking at well over $9,000 per contract.

The decline in Eurodollar futures prices is reflective of the rise in short term interest rates.

You basically subtract the current price from 100 to get an understanding of market expectations for interest rates.  Currently, short term rates are about 5%, and the market is expecting them to go higher.

Sizable moves were seen all along the yield curve.

CTAs are able to make money whether the market goes up or down, as short selling is easy to do in the futures markets.

Naturally, they also tend to do well when commodity markets heat up, which is what we saw in 2020 and 2021.

This played out in the 1970s and into the 1980’s as well, when inflation levels remained elevated.

If we’ve entered a similar type of period, then investors should likely expect continued volatility in these markets.  And, volatility equates to opportunity.

Also, it will also be more difficult for the stock market to perform well overall.

Higher interest rates and inflation eats into the costs of doing business for corporations.

Of course, some businesses will thrive.  This is why it will also pay to focus on individual companies, rather than the market as a whole.

To monitor what’s going on the futures markets, head on over to Barchart, where you will find price data for free on a wide variety of futures markets.