By Barbara Kollmeyer
Critical information for the US trading day
A previous version of this article gave an incorrect description of offset. The article has been corrected.
Investors are still reeling from Fed Chairman Jerome Powell’s loftier remarks last week.
“You can’t see the stock market crashing more than 5% on the words of one man,” grumbled FWDBONDS chief economist Chris Rupkey, who sees a major credibility problem for the bank. central. “Fed officials set inflation on fire with too much QE and now they say they know what to do now that inflation is out of control. No one believes it.”
And as we head into the worst calendar month for Wall Street, economists expect more hawkishness from the Fed, and say a strong jobs report on Friday will only strengthen resolve to raise rates.
So where are the shelters? Dividend stocks, the credit markets front, and Latin American currencies and bonds are just a few of the suggestions floating around.
Our call of the day from Goldman Sachs offers another. They see a buying opportunity via a recent soft spot in commodities and reduce risk elsewhere. They see equities threatened by sticky inflation and a potentially hawkish surprise from the Fed.
Commodities are “the best asset class to own during a late-cycle phase when demand still outstrips supply. Physical fundamentals signal some of the tightest markets in decades,” a team led by senior commodities strategist Sabine Schel in a new note.
The recent decline in agricultural and industrial commodities is due to a global recession whose prices are priced in by traders. Recession fears have impacted commodities more than any other asset class, Goldman said. However, the bank believes a recession will be mostly confined to Europe, the US and China avoiding one.
It’s a matter of just not enough products for everyone, they say.
“As further inventory declines trigger exhaustion risks, commodity returns for investors are likely to strengthen,” Schels said.
Discount refers to a premium given for close forward prices over contracts for later delivery.
Consistent with that view, Goldman raised its forecast for the S&P GSCI 12-month commodity index to 38.8%. The bank also forecasts 12-month returns of 51.7% for the energy sector.
Goldman says the drivers for this commodity run will be “micro in nature, as further price increases are needed to bring demand back in line with supply in the absence of stocks,” adding that these spikes will create “extreme” episodes of displacement.
“In 2000 or [2007-2008], for example, the depletion of stocks caused the oil markets to tip into a highly volatile price regime where extreme price spikes generated substantial backwardness. Even in the absence of significant price appreciation, this can produce exceptionally high returns for investors,” Goldman said.
And while the backwardness has been most commonly seen in energy, the Goldman team sees it spreading to base metals, including copper, corn and soybeans, where volatility is likely to rise.
Specifically, despite strong year-to-date returns, they see energy and agriculture leading the way. “With oil as the commodity of last resort in a time of severe energy shortages, we believe the pullback across the entire oil complex provides an attractive entry point for long-term investment.”
A McKinsey report recently highlighted a worsening global food supply situation in 2023, due to war in one of the world’s breadbasket – Ukraine – and climate change. The recent USDA corn report lowered next year’s yield.
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After the S&P 500 faltered late last week at 4,200, which has seen the most volume in the past two years, all eyes are on 3,900, says Jonathan Krinksy, chief market strategist at BTIG, to customers.
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“While we remain cautious in the near term, we believe the June lows will hold as weakness below 4000 should see sentiment and positioning turn bearish enough to create a decent entry point heading into the fourth. quarter,” he said. But if it breaks, they’ll tear up the playbook a bit, he says.
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