Commodity Bloodbath in 2015

In July 2015, I wrote a post on the linkage between commodity prices and stock prices during five periods of declining commodity prices in the past 35 years: 1980-1982, 1984-1986, 1997-1998, 2008-2009, and 2014-201. I concluded that four out of the five periods corresponded to simultaneous or subsequent declines in the US stock market. AND we are currently in the fifth period and commodity prices continue to tumble.

Commodity Price Update

Rather than attempt to report on the return of every commodity in 2015, a blurb in the latest Bloomberg Business 2015 Scorecard summed it up nicely:

"Cocoa was one of only two commodities to post positive returns. The other was palm Oil. The rest fell victim to slow global growth and shrinking demand. Oil fell 40.9% on the Nymex. "

Conclusion

The underlying forces of global supply and demand have similar effects on both stock and commodity markets. That makes the recent decline in commodity prices extremely troubling. The fact that commodity prices peaked in April 2011 suggests that the equity markets are long overdue for a correction. Unless we are banking on the increases in cocoa and palm oil prices to lead the way to global growth, it might be time to rethink the lofty level of equity prices.

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About Brian Johnson

I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers. I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies. In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years.
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