Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Plunging Commodity Prices Are Ominous For Stock Market!

Stock-Markets / Stock Markets 2012 May 12, 2012 - 03:45 AM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleConsumers understandably like to see prices for commodities decline, the more the merrier, particularly gasoline and energy costs.

Many analysts also take commodity price declines as a positive for the economy, on the theory that consumers will have more spending money in their pockets, and manufacturers will have lower costs, so hopefully greater earnings.


Investors tend to also take declining commodity prices as a positive for the stock market on the same reasoning.

Unfortunately, history doesn’t confirm the optimism.

As a five-year chart of the CRB Index of Commodity Prices shows, declining commodity prices usually indicate demand for goods is dropping and the economy is in trouble, which in turn is a problem for the stock market.

For instance, the price of oil dropped from $147 a barrel in 2008 to just $35 by early 2009. The CRB Index of Commodity Prices plunged 57%, from 470 to 200 in the same period. Good for the economy and stock market? Not hardly. The severe 2008-2009 ‘great recession’ and severe bear market in stocks accompanied the decline in commodity prices, and saw the S&P 500 also plunge 57%.

Similarly, in the summer of 2010 the CRB Commodity Index fell 15% from 293 to 248. The economic recovery stumbled, and the S&P 500 also fell 15% in that summer’s market correction before the Fed came to the rescue with QE2.

Last summer the CRB Index fell again, declining 19.5% from 370 to 298. And sure enough, the economic recovery was stumbling again, and the S&P 500 declined 21% in last summer’s correction, before the Fed came to the rescue with ‘operation twist’.

And here we are this spring seeing commodity prices plunging again.

The CRB Index of Commodity Inflation has declined 10% so far from its high in February, and indications are that the economic recovery is stumbling again.

Perhaps more ominous, the CRB Index did not recover much from its plunge of last summer before rolling over again this spring. It has remained in a ‘bear market’, still down 21% from its peak of a year ago, and showing no signs of bottoming. The latest report is that the Producer Price Index, which measures price changes before they reach the consumer level, declined 0.2% in April, its biggest monthly decline since October.

That does not seem to bode well for the economy or the stock market.

Indeed, commodity prices are global in nature, and major stock markets outside of the U.S. are already in quite significant corrections, some in bear markets.

The further declines in the U.S. stock market and oil prices of the last two weeks have both of them short-term oversold, and next week is an options expirations week and expirations weeks tend to be positive.

So it’s likely the stock market and oil prices will bounce back some next week - if they’re not sand-bagged by further negative news from the euro-zone.

But short-term bounces notwithstanding, investors would do well to keep their eye on commodity prices.

As noted, the CRB Index of Commodity Prices has declined 10% since its February peak and shows no sign of bottoming, and many major markets around the world are in significant corrections and showing no signs of bottoming. Yet the S&P 500 has pulled back only 4% so far from its recent peak.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in