Thursday, March 25, 2010

Underperforming Commodities and Commodity Stocks

While the U.S. dollar is on an upward path and Treasury rates have been moving higher, commodities (DBC; top chart) and commodity-related sectors (XLB; middle chart and XLE; bottom chart) have been lagging. Those sectors have also been relative strength laggards during today's session.

I don't think it's a coincidence that emerging market stocks (EEM) have also been lagging during 2010, in the wake of tightening economic conditions in China. Commodities have been, in part, an emerging markets growth story. Lately, traders have been betting on low inflation growth in the U.S., but not raging bull markets overseas.

Will slower growth abroad catch up to the U.S. and lead to a turnaround in U.S. stocks? Or will China seek to avoid a hard landing and resume breakneck growth, spurring commodities and further stock market gains?

I will be watching the relationships among overseas markets, commodities, and U.S. stocks to sort this important issue out.