Let me set the stage…

Over the past 20 years, it’s been nearly impossible for any asset class to displace U.S Equities as the strongest asset class on a relative basis.

So, is the U.S. Equities’ dominance over other global asset classes on the ropes?

Maybe… it’s still a wait-and-see. But they’re certainly taking it on the chin.

As of late last week, Commodities rolled over U.S. Equities to be the strongest of the six major asset classes that we track on a relative basis.

Commodities are now #1 and U.S. Equities are now #2.

You want to know where to invest? Start at the top with the strongest asset class.

And as of today, Commodities are king.

That’s a pretty big deal considering it doesn’t happen often.

Since January 2008, there have only been two other times that Commodities have been the strongest asset class on a relative basis – August of 2011 and June of 2016.

We can’t be sure how long commodities will hold the reins of relative strength leadership, but what we do know is that it’s often a mistake to fight the trend. 

In 2021, Commodities outperformed the S&P 500 by more than 10%.

And here we are, only six weeks into the new year, and Commodities are picking up right where they left off in 2021, with commodities outperforming the S&P 500 by 18.50% year-to-date.

The idea that we could be witnessing a commodities supercycle continues to mount – we are seeing more participation across the entire commodity space. In other words, it’s not just energy/oil.

The headline is Crude Oil breaking above 90. But Base Metals like aluminum and tin are hitting new all-time highs. And even Agriculture commodities are rallying.

All these things suggest that last year’s bull run wasn’t a simple “one and done” event.

To give you an idea, the illustration below shows year-to-date returns of various Commodity ETF performance vs. the S&P 500.

It’s got Energy, Base Metals, and Agriculture, including wheat and soybeans.

The key takeaway here should be that while the S&P 500 Index is in negative territory (-5.39%), Commodities from Energy to Base Metals and Agriculture are all solidly in positive territory.

The one area not included in the above is Precious Metals – and that’s because, as a group, they’ve been awful investments over the last year.

That is subject to change and if Precious Metals can get going as a group, it would further our belief that commodities continue to strengthen and therefore offer investors outperformance vs. U.S. growth and the S&P 500 – the things that worked in the past.

One key difference between last year and today is that the strength out of Commodities is starting to spill over into commodity-related equities.

This is an important development that supports the bullish case for commodities – it means greater participation. 

And this is where it gets more interesting. It means investors will have an opportunity, not only in the commodity itself but in stocks supporting the commodity.

Take Agriculture for example. 

Ags are getting back in gear – so it would also make sense to see those businesses associated with Agriculture catch higher, too. 

After bouncing off its pandemic lows, MOO has been on an absolute tear.

But, like other commodity-related stocks, it’s been consolidating since May 2021. 

But, it’s never a bad thing to see a stock or an ETF like MOO post new all-time highs, something it did last week.

The message here is straightforward: Equity markets are confirming the strength we’ve been seeing from commodities.

And it’s no longer just Energy stocks making new highs…

In recent weeks, we’ve seen industrial metals and agricultural stocks join in on the party too. 

Now it’s up to us as investors to ADAPT and position ourselves to benefit from these trends.

I’ve been talking about the need to lean more heavily on cyclical stocks for months. 

But, with participation expanding, now we have even more options to gain exposure to these Commodity-related groups.

Until next week, invest wisely.

P.S. Rowe Wealth can help you tackle the changing markets with ease – just give us a call. You can schedule a free 1-hour consultation to review your portfolio and determine your risk score here.