Pros and Cons The recent rally in commodity prices has surprised many market participants and has greatly supported the stock market’s rebound. It has also made bulls out of a number of former stock market bears, as one of its side effects was to cause an improvement in market internals. But does the rally actually make sense?
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As always, there are arguments both for and against the idea. We will take a look at several of them below.
The Secular Trend First of all, it is widely held that the ‘commodity super-cycle’ as it used to be called (i.e., the secular bull market that started in 1998) is definitely over. One could well say that there is a near 100% consensus on this question. After all, the CRB Index has declined to a 43 year low, i.e., to levels last seen in the 1970s.
Anyone who has watched commodities over recent years must surely wonder how this is even possible. For instance, crude oil recently bottomed at around $28, or 180% above its low of 1998. Gold bottomed at around $1,050 – more than 300% above its 1999 low. As far as we know, the only major commodity that has come anywhere near its lows of 18 years ago was natural gas.
This post was published at Acting-Man on May 3, 2016.
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