Tuesday, August 17, 2010
This chart of the CRB Spot Commodity Index (which consists of non-energy, basic industrial commodities, many of which have no related futures contracts) shows some pretty impressive strength, having risen 50% from its recession lows in late Dec. '08. Until the recent rise in the index which began in mid-July, the correlation between this index and the S&P 500 was about 0.85. The correlation has dropped since then because commodities have risen but equities have been flat. It may be that equities are simply slow to recognize the reality of ongoing global growth and the continued absence of fundamental deflationary forces that are reflected in strong commodity prices. I take encouragement from this, because at the very least commodity prices tell me that the market may be wrong to fear a double-dip recession and deflation.
Posted by Scott Grannis at 11:22 AM