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. "
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.
Print and Kindle Versions of Brian Johnson's 2nd Book are Available on Amazon (75% 5-Star Reviews)
Print and Kindle Versions of Brian Johnson's 1st Book are Available on Amazon (79% 5-Star Reviews)
Trader Edge Strategy E-Subscription Now Available: 20% ROR
The Trader Edge Asset Allocation Rotational (AAR) Strategy is a conservative, long-only, asset allocation strategy that rotates monthly among five large asset classes. The AAR strategy has generated annual returns of approximately 20% over the combined back and forward test period. Please use the above link to learn more about the AAR strategy.
Copyright 2015 - Trading Insights, LLC - All Rights Reserved.