- One theory about the US economy being in a recession has to do with commodity futures markets not following along with bullish supply and demand situations.
- I would counter with the commodity complex has seen a continuing string of markets hitting new highs over the last year (or so), with investors rolling from one opportunity to the next.
- If everything is bullish, and investors have a seemingly endless list of markets to choose from, is it actually a recession?
A hot topic of late is if the sluggishness of the commodity complex in general is a recessionary indicator. Believe it or not, I have an opinion on that. But before I go there let me say it gets tiresome seeing the constant barrage of headlines reading something to the effect of, “Yes, markets are posting incredible rallies, but it isn’t real. Things are actually really, really bad. Don’t listen to the folks who are making money due to a list of bullish factors too long to recite, for the SKY IS FALLING!” I could go on, but you get my point.
As I’ve talked about numerous times since last fall, I see all three major US stock indexes in long-term uptrends. Is Nasdaq (high tech stocks) leading the way? Yes, but something has to lead. Not everything can be a follower (Though that does pose an intriguing possibility. If all market sectors and individual markets are circling similar to what wagon trains used to do when threatened, then it is possible for all to be following.) But I digress. I talked at length last time about how US stocks have turned bullish, bonds have turned bullish, and commodities are taking turns hitting new all-time highs. One of the latest has been orange juice (OJN23), with the nearby July issue hitting a record mark of $2.9550 during May.
We also can’t forget about boxed beef, a market I use as a key economic read for the US. Thursday afternoon’s reported prices came in at $342.07 (per 100 pounds) for choice and $309.58 for select. These are the highest prices since late September 2021, with the spread between the two markets of $32.49 the largest since late October 2022. If US consumers are not backing away from the higher priced beef cuts, is it actually a recession? I know I could ask a dozen economists and get 13 different answers to that one.
Part of the recessionary theory is commodity futures are not following along with individual market fundamentals, with so many of them showing short supply situations due to global weather. As I type this, I’m trying to think of a market that hasn’t posted a new high over the past year (or so). Crude oil is usually one that comes up early in the conversation. A look at monthly charts shows the nearby WTI contract (CLN23) posted a high of $130.50 during March 2022 while the Brent market (QAQ23) hit $137.00. As we all know by now, the supply and demand situation of crude oil has changed a great deal since then with both markets in position to start long-term uptrends.
What about natural gas (NGN23)? The Widow Maker rocketed to $10.028 last August before plummeting to a low of $1.946 this past April. Is this recessionary behavior? Not really. I’d classify it as natural gas simply doing what natural gas likes to do – Make anyone who plays, pay. For the record, the spot-month contract completed a bullish reversal pattern during April setting the stage for a possible move higher over the coming months.
What about metals, though? Copper (HGN23) usually takes center stage when discussion of economics begins, and the futures market has slowly been growing more bullish. But let’s bring history into play. At the end of March 2020, as the global pandemic seized markets with an iron fist, the spot-month copper futures contract hit a low of $2.0595. By March 2022 the market’s spot-month contract had hit a high of $5.01, more than doubling in price. The market dropped back to a low of $3.15 during July 2022, and has since made a run back above $4.30. The monthly chart shows me the next move should be above the January 2023 high of $4.3145. And if Dr. Copper is rallying, I’ll ask again, is it actually a recession?
To me, investment traders have their choice of commodity markets to move money into, and it doesn’t have to cover the entire complex. If weather remains an issue in the US, look for money to flow back into grains and oilseeds. If El Nino brings more summer rains, then money might make its way into metals instead. And if OPEC+ continues with its production cuts and the US Department of Energy starts buying back more than little increments of crude oil for the Strategic Petroleum Reserve, crude oil (and the energy sector as a whole) could once again find favor.
If global investors have a cornucopia of choices as to where to put money, with the big three sectors of stocks, bonds, and commodities in long-term uptrends, one last time I’ll ask, is it actually a recession?
More Stock Market News from Barchart
- Can the Rally Continue for Meta Platforms?
- Stocks Moves Sideways Today After Yesterday's Rally
- What the Sharp Rise in Ammo Inc (POWW) Tells Us About the Anti-Woke Movement
- Copper Prices: A Forecast on When to Expect a Rise in 2023
