Ed Note: With US Dollar breaking to multi-year lows and the 37 Year old Bull Market in Bonds set to go bearish there is going to be dramatic changes in where money flows. Based on previous booms and busts, the S&P GSCI Total Return Index-to-S&P 500 Index ratio above is now at its lowest point since the dotcom bubble, meaning commodities and mining companies are highly undervalued relative to large-cap stocks. I think its highly likely that in the Stock Market the more glamorous sectors like Biotech, Cannabis, Cryptocurrencies and the FANGS, etc. will likely give way stocks that have significant exposure to commodities. Money Talks Ed.
Recipe Calls for a Broad Commodities Rally in 2018
At the beginning of every year, we update what’s typically one of our most popular pages, the Periodic Table of Commodity Returns. I encourage you to explore 10 years’ worth of data on basic materials such as aluminum, zinc and everything in between. A word of warning, though—the interactive feature makes the table highly addictive. Please feel free to share it with friends and family!
It was a photo finish for commodities in 2017. The group, as measured by the Bloomberg Commodity Index, barely eked out a win for the second straight year, edging up 0.7 percent. Spurred by a weaker U.S. dollar and strengthening materials demand from factories, the index headed higher thanks to a breathtaking rally late in the year that lasted a record 14 consecutive days.
The annual return might not look too impressive, but I believe the economic conditions are ripe for a broad commodities rally in 2018. I’m not alone in predicting they’ll be among the best performing asset classes by year end, perhaps even beating domestic equities as quantitative tightening threatens to put a damper on the nine-year bull run.
Analysts at Goldman Sachs, for instance, are overly bullish commodities, recommending an overweight position for the next 12 months. Bank of America Merrill Lynch is calling for a $7,700-a-tonne copper price target by mid-2018, up from $7,140 today. In last Friday’s technical market outlook, Bloomberg Intelligence commodity strategist Mike McGlone writes that the “technical setup for metals is similar to the early days of the 2002-08 bull market.” Hedge fund managers are currently building never-before-seen long positions in heating oil and Brent crude oil, which broke above $70 a barrel in intraday trading Thursday for the first time since December 2014. It’s now up close to 160 percent since its recent low of $27 a barrel at the beginning of 2016.
Few have taken such a bullish position, though, as billionaire founder of DoubleLine Capital Jeffrey Gundlach, whose thoughts are always worth considering.