Via Bloomberg
Ok, this is for the medium term. So, tin the stock market landscape we would expect this to potentially kick in around this summer. The relationship is that a rise in commodity prices often occur before a stock market correction. Here are the details:
The Bloomberg commodity index has risen a whopping 60% since April 2020
At the time of writing, just before the end of February, this period of commodity growth has been the fastest climb in more than 40 years. It is the 8th largest ever growth since the Bloomberg Commodity Spot Index began more than 60 years ago.
The key point is this: In the top 10 months following record rises in commodity prices there tends to be falls in stock markets. These months are distributed as follows: 6 samples from 1973. 2 from 1980 and the rest from January 1974 and June 2008.
Here is the average S&P500 performance after the strong rally in commodities.
- 1-month afterwards: -1.1% loss (9 out of 10 falls)
- 3-month afterwards: -3.8% loss (7 out of 10 negative)
- 6-month afterwards: -7.9% loss (7 out of 10 negative)
- 12-months afterwards : -11.4% (8 out of 10 negative)
So, bottom line is that this is another signal that we could be close to a stock market correction.