Will Crashing Commodities Crash the Stock Market?

Will Crashing Commodities Crash the Stock Market? | Clif Droke | Safehaven.com


Consider the classic example of 1998. In that year there was a major bull market in stocks that extended into July of that year. Simultaneous to that was a major decline in commodity prices across the board. By the end of July, the general weakness in commodities spilled over into equities and led to a swift, dramatic plunge which saw the U.S. stock market briefly enter bear market territory by the end of August. It was in fact the shortest bear market on record for the U.S. There was an equally dramatic recovery for stocks in the fourth quarter of that year, but the correlation between weak commodity prices and the stock market was undeniable.
Flash forward to 2014. Many commodities have been weak this year, including grains and crude oil. Unlike 1998, however, oil prices can be described as fairly buoyant on an intermediate-term basis. In fact, the oil price rallied from a major low in January until peaking last month. The pullback since the June peak has been fairly small and contained up until now notwithstanding media rhetoric to the contrary.

 Lots of new lows put in relating to the commodity sector that bares watching.