STOCK AND COMMODITY CROSSROADS © Leo Haviland June 12, 2012

In diverse ways, many financial marketplace pilgrims monitor the equity realm and the commodities universe “together”. In recent years, significant price trends in commodities “in general” (use the broad Goldman Sachs Commodity Index as a signpost) roughly have paralleled those of the S+P 500. Noteworthy bull voyages in the GSCI have commenced at “around” the same time as those in the S+P 500. The same perspective appears for bear trips. Intersections between equity benchmarks and commodities contribute to the ongoing worldwide economic crisis story.

Some narrower stock sector indices such as the XOI, OSX, CRX, XNG, and XLE stand at a crossroads between commodities related to them and to wider equity indicators like the S+P 500. Thus many narrow equity domains intersect with (have links to) the so-called overall United States (and global) economy as well as to the important commodities related to that given sector. Thus an equity index composed of corporations involved in the petroleum industry reflects to some extent price levels and trends in “underlying” (related) oil prices. Thus some narrow United States stock sector indices at times can offer useful perspectives on (confirm, reflect) past, current, and future paths for wider stock indices such as the S+P 500 and the broad GSCI.

Scan the attached chart analysis. The broad GSCI chart displays price and time links between commodities and the S+P 500 from mid-2008 (and the acceleration of the worldwide economic disaster) through the recovery and up to the present. See several important equity sector indices, the XOI, OSX, XNG, and CRX, in this context. These four narrow equity indicators contain different members. Their price and time routes are not exact duplicates. Yet significantly, especially when interpreted together, the patterns of the XOI and its friends resemble that of the S+P 500 and the broad GSCI.

This viewpoint does more than underline that the international economic crisis that walked onstage in 2007 remains far from solved. Take a look at the price level from the start of May 2012 to now in these stock and commodity charts alongside their prices during mid to late summer 2008. The 5/1/12 and thereafter levels are around ranges from which prices collapsed as the economic disaster worsened in late 2008. The world of course is not exactly the same now as then. Many observers contend that central bankers, finance ministers, and politicians have gained experience as the global economic crisis has unfolded.

Nevertheless, though stock and commodity marketplaces in 2012 or thereafter may not repeat the accelerated descent of late 2008, that period of four years ago should not be forgotten. Keep the attached chart of the S+P 500 from the sunset of the blissful Goldilocks Era in 2007 to the marketplace bottom on 3/6/09 at 667 in mind.

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Stock and Commodity Crossroads (6-12-12)
Stock and Commodity Crossroads- Charts (6-12-12)