Commodity Crash- A Warning Sign For Stocks?

| September 29, 2015 | 0 Comments

cautionCommodity Crash: Buyer Beware?

No doubt about it, the commodity crash of the past year has been harsh and unforgiving.  The majority of hard assets have sunk to multi-year lows thanks to a host of market specific factors.

Energy, metals, softs- they’ve all been hit hard.

To get an overall idea of how commodities have performed the past year, look no further than the Reuters/Jeffries CRB index…

Commodity Crash, a chart of the $CRB

As you can see, this closely watched index has plummeted 30% over the past twelve months.  In case you’re unaware, the CRB index reflects an equally weighted basket of 19 of the world’s most important commodities.

Of course, much of the CRB downturn has to do with the enormous downturn in the energy markets.  WTI crude is off 53% in the past year, while natural gas is down by 35%.

But that’s not all…

Precious metals platinum and palladium are down by 29% and 17% respectively.  Coffee and sugar have collapsed 41% and 29% in turn.

And let’s not forget copper…

The red metal, which is seen as a bellwether of global economic health, has careened lower by 25% since September of last year.  Believe it or not, copper is reaching prices last seen in 2009, during the extreme uncertainty of the global financial crisis.

The hefty copper downturn brings an important question to mind…

Is the past year’s selloff forecasting a tumultuous downturn for the global economy? 

As you may know, there are already some big worries coming out of China.

The world’s second largest economy is hitting a major road bump in terms of economic growth.  Recent manufacturing and import/export data reveals the country is slowing quite rapidly.

Here’s the deal…

Wall Street can’t figure out if China’s economic dip is just a short-term blip, or if their economy is indeed coming in for a hard landing.

As I’m sure you’re aware, US equity markets are suffering through a rather intense bout of volatility because of China.  In fact, the S&P 500 is already down over 10% from the all-time highs set just two months ago.

Take a look at this long-term chart…

Commodity Crash, a chart of the S&P 500

As you can see, the S&P 500 has experienced a remarkable run-up since the lows of the financial crisis in early 2009.  But as you can also see, the past few weeks of trading have sent the S&P 500 sharply lower.

Here’s the question…

Is the recent selloff in equities the start of an even bigger downturn- one that copper and other commodity markets have been forecasting for over a year now?

It’s an important question, and one that has a multitude of opinions for answers.

Here’s how I look at it…

If demand for copper and other commodities is really weakening as much as the hard asset markets have priced in over the past year, there could be big trouble brewing for the global economy-and the equity markets as a whole.

As a result, the recent stock downturn could very well be the start of a larger correction.  In fact, the odds are quickly growing of a drop to the red trend line in the chart above.

Such a downturn would mean the S&P 500 has at least another 10% of downside ahead of it.

Invest accordingly…

Until Next Time,

Justin Bennett

***Editor’s Note***  Please visit the poll on the right side of the page and give your opinion on today’s article!

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.

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Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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