This Commodities Rally Might Be Nothing Compared To What’s Next

This Commodities Rally Might Be Nothing Compared To What’s Next
Stéphane Renevier, CFA

almost 2 years ago1 min

Commodities are up 23% so far this year, beating stocks by more than 30% in the short space of three months. That’s made a lot of investors wonder whether commodities have much more juice in the tank, and, more importantly, whether they can keep outperforming stocks going forward.

Given that anything can happen in the short term (and a pullback in commodities is certainly a possibility), it’s healthy to try to move out of the day-to-day price action and take a bigger perspective. So if we look at how commodities have performed historically versus stocks, we see that the recent rally is only a blip in the long-term picture. Commodity prices are still close to their most depressed levels next to stocks, and far, far away from previous geopolitically fueled spikes.

Now, that doesn’t necessarily mean that buying commodities and shorting stocks is the trade of the century. But it does show that based on the historical relationship between the two, commodities’ outperformance may have much further to run. In fact, in light of central banks’ dramatic pivot toward monetary tightening and governments' towards fiscal stimulus, the era of a commodity outperformance may only just have begun.



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