Last week, in a Chart-of-the-Day piece, I wrote about the impact rising interest rates could have on stocks.

There’s a strongly-held belief that higher interest rates always work against stocks. But that’s only half true.

The direction of interest rates is important. But the level of interest rates is just as important. And this aspect of the relationship between interest rates and stock prices is often overlooked.

Here’s the chart I shared. J.P. Morgan consistently publishes it in its Quarterly Guide to the Markets:

(Click on image to enlarge)

The chart plots the correlation between weekly stock returns and interest rate movements. It answers the simple question: “Do rates and stocks typically move in the same direction or in opposite directions.

The answer is: it depends on whether interest rates are above or below 5%.

When interest rates are above 5%, an upward trend in rates has historically weighed heavy on stock prices. This is the story most investors are told… higher rates make borrowing costlier, lending a cooling effect to the economy and investors’ expectations for stock returns.

But when rates are below 5%… an upward trend in interest rates has acted as a tailwind for stocks. Stock prices have historically moved higher, alongside higher interest rates, while rates are under the 5% threshold.

Rates are under 5% today.

The trend of rising interest rates will indeed act as a headwind for stocks… eventually. But it could be a while longer before that headwind kicks in.

Until we hit the 5% threshold, we could easily see stocks continue to rise alongside interest rates.

Some stocks, that is. Certainly not all stocks.

The thing with this sudden return of focus on inflation and interest rates is that it will spur shifts in investors’ preferences. As the threat of inflation grows stronger, and closer, we’ll see shifts away from rate-sensitive sectors – like utilities and real estate – and shifts toward sectors that are typically more robust to higher rates, like commodities.

While the most recent iteration of “inflation spook” seemed to crystalize with the February 2 wage growth report, early signs of the inflation trade were brewing as early as last December.

Since then, the utilities sector (XLU) is down 9.1% – clearly the worst of all U.S. sectors since mid-December.

Real estate investment trusts (VNQ) lost 11.7%, putting the sector into bear market territory now that prices are 20% off their July 2016 high!

The real winners of the recent inflation trade has been commodities!

Every single commodity ETF I track is up since mid-December.

Copper’s up 2.6%.

Silver 3.7%.

Agricultural commodities have gained 3.9%.

Natural gas is up 5.8%.

Gold 6.9%.

Crude oil prices have risen an impressive 8.6%.

And platinum prices have jumped 12.8% higher.

All told, it’s too early to call higher interest rates a “killer” of the bull market in stocks.

But now that higher interest rates and inflation are in focus, you shouldn’t be surprised to see renewed interest in hard assets, like gold and oil.