From the desk of Willie Delwiche.
In a year marked by broad weakness in both stocks and bonds, commodity strength has provided some portfolio ballast for those who have been willing and able to expand their asset allocation opportunity set. After several weeks of consolidation, the CRB commodity index is again making new highs. But rally participation looks to be narrowing. Only 12% of the commodities in our ASC Commodities universe have made new 52-week highs in the past two weeks. This was as high as 50% earlier this year. Perhaps not surprisingly, our equal-weight commodity index has not confirmed the strength in the CRB index (which has heavy tilting toward energy-related commodities). I think Bob Farrell’s Rule 7 applies here: “Markets are strongest when they are broad and weakest when they narrow.” Strength in the CRB index is more likely to persist if it’s not just energy fueling the advance.
