It has been just over a year since the S&P 500 Index bottomed on March 23, 2020, and while global stock markets have provided historic returns since the low, the biggest winners come from a completely different asset class: commodities. As global activity quickly ground to a halt, commodity prices plummeted, with oil prices even trading for a negative value for the first time in history.
Since March 23, 2020, commodity markets have roared back as the global economy has emerged from the shadow of COVID-19. As shown in the LPL Chart of the day, oil and lumber prices have more than doubled off the lows, while copper prices have pulled back a bit after reaching that feat back in February:
“After likely their worst period in history, although I wasn’t around for the bubonic plague so I can’t be certain, commodity prices have roared back as the global economy continues to wake up,” added LPL Financial Chief Market Strategist Ryan Detrick. “The US and China are well ahead of other nations in terms of economy activity and output, so as the rest of the world plays catch up, we wouldn’t be surprised to see commodities rise even further.”
The emergence from lockdowns and subsequent increase in activity has boosted prices from the outright deflationary environment we saw last spring, to a more reflationary environment in recent months, and this has pulled commodity prices along with it. The commodity market’s top performer, lumber, has seen a particular boom in prices as the “stay at home environment” benefitted the housing market, leading to all-time highs in housing starts in December—even surpassing the high water mark set before the pandemic began. Adding to the fervor, mortgage rates continued to set record lows, falling as low as 2.82%, according to the Bankrate 30-year national average.
We upgraded our view on oil in our January Global Portfolio Strategy publication, as strong technical factors favored prices to accelerate higher. Further, oil prices have continue to benefit from a favorable supply environment, with OPEC+ maintaining output until global demand rises, though the risk of a global increase in production at higher prices remains a risk to our view.
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