Copper sends caution signal on U.S. stocks to strategist

Copper’s rally after years of losses is ominous for U.S. stocks, according to Albert Edwards, a global strategist at Societe Generale SA. He highlighted the link between the metal’s price and the S&P 500 Index since 2011 in a report, published Thursday. Rising prices for copper and other industrial metals reflect traditional moves “that occur towards the end of the economic cycle,” wrote Edwards, who has been bearish on stocks since 1996 as part of a thesis he calls the “Ice Age.”

 

Copper loses to chips as stock indicator

The commodity that’s said to have a Ph.D. in economics because of its value as a growth indicator isn’t much of a stock-market barometer, according to Andrew Thrasher, an analyst at Financial Enhancement Group.

“Dr. Copper in my opinion has been replaced by technology, specifically semiconductors,” Thrasher wrote in a blog posting yesterday. “The market seems to be much more focused on the happenings of Silicon Valley than Milwaukee or Detroit.”

 S&P 500 Index, the Philadelphia Semiconductor Index and the price of copper in New York since March 2009, when stocks began their current bull market.

Copper futures set a record in February 2011 and tumbled 37 percent through yesterday, when the price for March delivery settled at $2.9145 a pound on the Comex. At the same time, the Philadelphia index of 30 chip producers rose 51 percent. The gain was in line with the S&P 500’s advance of 56 percent.

The semiconductor-stock gauge peaked in 2011 about two months before the S&P 500 began a 19 percent drop, the bull market’s biggest retreat, as Thrasher wrote in the posting.

“Ever since then, we’ve gotten confirmation” of the S&P 500’s highs from chip shares, he wrote. The Indianapolis-based analyst added: “It seems copper has been expelled while the semiconductors step to the front of the class.”

Copper-oil ratio signals drop in U.S. stocks

Commodity prices are signaling this year’s rally in U.S. stocks will fade, according to Gina Martin

Adams, a Wells Fargo & Co. strategist.

     

The ratio between copper and crude-oil futures vs the Standard & Poor’s 500 Index.

     

“When copper is accelerating faster than oil prices, stocks tend to do particularly well,” Martin Adams wrote two days ago in a report with a similar chart. “Much the opposite has been the case recently.”

     

From this year’s peak on Feb. 6, the ratio fell 9 percent through yesterday. The S&P 500 advanced 4.6 percent during the same period.

     “The direction of copper is historically one of the best leading indicators” of global economic growth, the New York-based strategist wrote. This contributes to the copper-to-oil ratio’s usefulness as a stock-market gauge, the report said.

     Price moves affecting the ratio can make or break earnings estimates, Martin Adams added. Her projection of $102 a share in S&P 500 profit this year assumes commodity costs will be little changed. Copper rose 11 percent for the year through yesterday, and oil rose 6.9 percent.

 

 

*** Update 10 years later ***

 

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