A Commodity Super Cycle looks Underway

December 20, 2020

Weekly Market Outlook

By Keith Schneider


blankEquity markets continue their bullish tear closing positive on the week and once again led by Grandpa Russell +2.5% (IWM). This is being partially fueled by the prospects of the passing of a long-awaited stimulus package in tandem with the optimism from the COVID vaccine rollout and seasonal (holiday) optimism. However, the pending stimulus package in conjunction with the Government’s easy monetary policy is pushing the dollar down around the globe and creating some big macro trends.

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  • Commodity prices are percolating including Softs (DBA), Industrial Metals (Silver, Copper, Gold) and even Crude Oil (USO). Massive spending from the Federal Government along with the Federal Reserve’s recent announcement of extremely low rates is helping to fuel this phase beginning anew.
  • Commercial Real Estate (VNQ) received negative long-term projections, according to a Bloomberg article this week, one of the fallouts from the Virus. Commercial Real Estate is still down at least 15% off the highs set in February, while Homebuilders (XHB) have done well as the work from home trend intensifies
  • ESG and Socially conscious investing themes are gaining traction, especially among large asset managers such as Blackrock and among pension fund managers. The DOL is considering such mandates as well.  Meanwhile, a shareholder revolt is underway for climate changes and company’s like Exxon Mobile (XON) are among the many early targets.
  • Country ETF’s, a few of which are in a MG investment model, continue recent outperformance over the US markets, as the dollar weakness is benefitting these developed and emerging countries worldwide.
  • Easy money continues to benefit speculators as IPO’s had another huge performance week for “new economy” type companies that don’t yet have profits to show, but their growth is drawing in investors (speculators) in record numbers.

The highlights of this week’s market action are the following: as follows:

  • Risk gauges are still in Risk On mode but weakened slightly due to positive relative strength in precious metals
  • The strength in Small Caps (IWM) once again continued this week
  • Volume patterns are holding in a neutral to positive zone
  • Market Internals however, backed off to neutral and/or slightly negative readings despite key indices hitting new all-time highs
  • Value Stocks (VTV) under-performed verses Growth (VUG) this past week testing the resolve of this emerging rotation
  • Solar and Clean Energy stocks continue to reap the benefit of the rise of renewable energy with Solar (TAN) roaring, + 15% for the week and a staggering +171 for the last 6 months (one of the ETF positions in a Market Gauge investment product)
  • US Long Bonds (TLT) are poised to test recent lows despite the Fed’s promise to keep rates low for years
  • Crude Oil (USO), Soft Commodities (DBA) and Industrial Metals (XME) all performed well suggesting an inflationary environment may be starting in earnest
  • The dollar (UUP) selloff resumed with the Chinese Yuan, Euro and UK Pound the biggest beneficiaries.
  • Silver was strong this week (potentially a new breakout) with Gold staying within a four-month channel and having a positive phase change

Best wishes for your trading. Stay safe, healthy and enjoy your holiday week.

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