Commodities quietly outperform

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Bank earnings were supposed to be the big thing this week, but commodities may be stealing the show.

Consider some basic data points from TradeStation’s ever-useful RadarScreen® number-crunching tool:

  • Of the 25 member companies in SPDR’s Materials ETF (XLB), just four are lagging the S&P 500 this week.
  • Of the 32 stocks in SPDR’s Materials ETF (XLE), only six are up less than the S&P 500 this week.
  • In contrast, 30 of the 72 companies in the SPDR’s Technology Fund (XLK) are lagging the broader index.
  • It’s even worse for financials, which led the earnings parade: Only eight of the 33 companies in SPDR’s Financial ETF (XLF) have outperformed the S&P 500.
  • Two country-tracking ETFs hit new 52-week highs on Wednesday: Peru (EPU) and Colombia (GXG). Both are big commodity exporters.
  • Lumber futures hit a new record high of 518. (LBU18 is the symbol for the current contracts expiring September 2018.)

No single event seems to explain the shift in sentiment. The first clue may have been on March 19, when crude oil futures (@CL) broke free of a falling triangle. Not much else happened for a few weeks, but then the bulls started running on on April 10 when China backed down from a looming trade war with the U.S. Almost every day after that stocks have pushed higher and news reports sounded more bullish: Federal Reserve officials anticipated higher inflation, housing activity was stronger than expected and policy wonks talked up the U.S. economy.

Despite all those positives, the U.S. dollar has failed to rally and remains below its 50-day moving average. That’s not only a sign of optimism and risk appetite, it also tends to help commodities that are priced in greenbacks.

Bottom line: Commodities have been a forgotten corner of the market for most of the decade, but now they’re starting to show signs of life.

Lumber futures
Lumber futures
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.