The 'supercycle' bull-case for commodities is wearing thin as technical indicators begin to deteriorate, research firm says
- The relentless increase in commodity prices could be coming to an end, according to Ned Davis Research.
- The research firm highlighted deteriorating technical indicators that suggests the "supercycle" narrative is at risk.
- An ongoing decline in commodity prices would have big implications for
The long-term "supercycle" bull case for commodity prices is starting to wear thin as technical indicators start to deteriorate, Ned Davis Research said in a Tuesday note.
That could have big implications for the stock and bond market, as investors grapple with the worst start to the year since 1970.
"The NDR Commodity Model has joined the bearish camp, now at its lowest reading since June 2020. As a sign of waning inflationary pressures, this may be a positive indication for bonds, stocks, or both," NDR said.
The research firm's commodity model has specifically seen deteriorating breadth, as only seven of its 19 commodity components are
The price damage in
Additionally, the Baltic Dry Index has seen a marked decline, falling by more than 50% from its cycle high. That suggests supply chain bottlenecks are finally easing, according to the note.
"It remains to be seen if demand slows down enough to put the brakes on inflation," NDR said. If inflation continues to rise, that could help commodity prices regain their upwards price momentum, increase the chances of stagflation, and lead to a secular bear market in the stock market.
But a pattern of lower highs and lower lows in commodity prices since 2009 are indicative of a secular downtrend, and that could put additional pressure on calls for structurally higher energy prices if the pattern holds.
"There's been diminishing evidence of a secular bull in commodities, or what's often called a supercycle, especially now that our commodity model has turned bearish again," NDR said.
- New Fund Offers explained – Should you bite the bullet or stick to the tried and tested?
- Bullish domestic markets push up Rupee to 83.37/USD
- No Monday blues: Sensex scales 70,000-peak for the first time; Nifty crosses 21,000-level
- Initial Public Offerings (IPOs)
- Not hard, not soft, the earliest dino eggs may have been of a 'leathery' texture to protect against damage: study