Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20
Facebook (FB) AI Mega-trend Tech Stocks Investing 2020 - 10th Feb 20
The US Constitution IS the Crisis - 10th Feb 20
Stock Market Correction Continues - 10th Feb 20
Useful Tips for Becoming a Better Man - 10th Feb 20
Will CoronaVirus Pandemic Trigger a Stocks Bear Market 2020? Part1 - 9th Feb 20
Could Silver Break-out like it did in 2011? - 9th Feb 20
The End of the Global Economy - 9th Feb 20
Fed to Stimulate in Any Crisis; Don’t Let Short-Term Events Bother You - 9th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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.


© 2005-2019 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

6 Critical Money Making Rules