{"id":21696,"date":"2024-04-03T07:30:03","date_gmt":"2024-04-03T11:30:03","guid":{"rendered":""},"modified":"2024-04-03T07:30:03","modified_gmt":"2024-04-03T11:30:03","slug":"are-commodities-staging-a-new-super-cycle","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/are-commodities-staging-a-new-super-cycle\/","title":{"rendered":"Are Commodities Staging a New Super Cycle?"},"content":{"rendered":"

Today we’re going to talk about commodities.<\/p>\n

Commodities are one of my favorite asset classes to trade. Crude oil, natural gas, and cocoa<\/a> are renowned for their volatility.<\/p>\n

And for traders, volatility is an amazing thing. It’s what allows us to capture those big moves that go both up and down.<\/p>\n

Of course, for investors, volatility is a lot less desired.<\/p>\n

You generally want your investments to provide stable returns over a long period of time.<\/p>\n

And when it comes to quality as an investment, there’s no doubt that stocks have greatly outperformed commodities over the long run.<\/p>\n

One way we can measure the performance of commodities relative to stocks is by looking at the S&P 500 and Producer Price Index (PPI) ratio.<\/p>\n

The PPI is an economic index that measures the average changes in price for the raw materials – commodities – that producers require in order to manufacture their goods.<\/p>\n

So while the S&P 500 and the PPI can both rise simultaneously, we can still track the relative performance of each market.<\/p>\n

By looking at the S&P 500 \/ PPI ratio, we can assess how stocks and commodities have behaved at various times in the past.<\/p>\n

You can check out the S&P 500 \/ PPI ratio in chart form below:<\/p>\n

<\/p>\n

\"Image\"<\/p>\n

When the ratio is rising, it means that stocks are outperforming commodities. And when the ratio falls, it means commodities are outperforming stocks.<\/p>\n

As we can see, stocks have soundly outperformed commodities over the decades.<\/p>\n

In fact, if you look closely at the ratio chart, you’ll notice something very interesting…<\/p>\n

I’m talking about the periods when commodities do outperform stocks.<\/p>\n

Those relatively rare periods coincide with significant downturns in the stock market. For example, the dot-com crash of 2000, the financial crisis of 2007-2008, and the more recent 2022 bear market.<\/p>\n

And what the ratio chart is telling us right now is that commodities are historically underpriced<\/em> relative to stocks.<\/p>\n

<\/p>\n

\n
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Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/p><\/div>\n<\/div>\n

<\/p>\n

Now, I’m not suggesting that the next market crash is immediately at hand.<\/p>\n

In fact, if you’ve been reading my writing, you’ll see that I’ve maintained a bullish stance<\/a> when it comes to trading.<\/p>\n

But what I am saying is that when the next market crash happens, traders and investors would be wise to pay very close attention to commodities.<\/p>\n

That’s the corner of the market that’s likely going to explode.<\/p>\n

And given how the stocks to commodities ratio is currently sitting at fresh all-time highs, I certainly expect the next commodities boom to be one for the ages.<\/p>\n

Happy trading,<\/p>\n

\"Signature\"<\/p>\n

Imre Gams<\/p>\n","protected":false},"excerpt":{"rendered":"

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