DTT Buzz

Over the past year commodities and commodity based stocks have gone absolutely parabolic, and look to be continuing to the upside. Will they ever quit?

Historically when the United States has entered a period of contraction equities act as a leading indicator and start to sell off, at which point, some of that money heads into commodities. Equity pricing is a reflection of the present value of the continuing value, so when forward guidance or earning projections are revised downward equities take a dive. This usually happens in response to a cyclical rise in interest rates: Federal Banks usually raise interest rates in response to demand pull-inflation pressures. Commodity prices usually remain elevated until inflation pressures subside, and in some time periods (like this business cycle) add to the upward pressure through cost-push inflation. Commodity based stocks do well in this type of environment due to their underlying.


Keith Greff
DTT Trader/ Analyst