If you’re looking for action, the commodities sector has traditionally been a good place to find it.
With wild price swings, massive up-cycles, exciting resource discoveries, and extreme weather events all playing into things, there’s usually never a dull day in the sector. That being said, it’s hard to remember a more lackluster period for commodities than in the last couple of years.
For commodity bulls, the good news is that the sector is no longer tanking. The bad news, however, is that all the recent action has been in relatively niche sectors, as metals like cobalt, zinc, and lithium all have their day in the sun.
At the same time, the big commodities (gold, oil, copper) have all slid sideways, having yet to revisit their former periods of glory.
ARE COMMODITIES CHEAP?
From the post-crisis bottom in 2009 until today, the S&P 500 is up a staggering 215.4%.
During that same timeframe, most major commodities crashed and then went sideways. The Goldman Sachs Commodity Index (GSCI) is down roughly -31.2%, which is a strong juxtaposition to how equities have done.
This extreme divergence can be best seen in this long-term chart, which compares the two indices since 1971.
In other words: despite the lack of action in commodities that we noted earlier, the sector has never been cheaper relative to equities even going back 45 years.
That means that there could be some much-needed action soon.