Home » Business » The bullish case for this asset class is building, and big investors are AWOL

The bullish case for this asset class is building, and big investors are AWOL

Everything’s coming up daisies as a new quarter kicks off.

Stocks are looking at more gains after the long holiday weekend. Ahead of that, the S&P 500 SPX closed out the first quarter of the year with a 22nd record high.

Investors are weighing up comments from Fed Chair Jerome Powell, who on Friday said he saw no surprises in the central bank’s favorite inflation gauge, but also saw no rush to cut rates. We’ll hear more from Powell later this week, along with data including jobs numbers.

Are big investors ignoring a potentially lucrative asset class right now? That’s the message from our call of the day via a Sunday blog post by the Mosaic Asset Company, which flags a “bullish case for commodities.”

Note, gold prices hit another record on Monday.

The backdrop is that “rate cuts are on the way while the economy avoids tipping into a recession.” And while that setup is good for stocks, various commodities have also been seeing a favorable response, says Mosaic.

Their chart below shows how various commodities have performed in a non-recessionary environment when the 2-year yield BX:TMUBMUSD02Y is headed lower, with standout performances for copper, industrial metals, oil and gold:

But also in favor of the commodity trade is lackluster exposure by professional investors, says Mosaic. “As an asset class, commodities have lagged behind badly with overall falling prices in the S&P GSCI commodity index since mid-2022, giving fund managers little reason to chase performance.”

Citing Bank of America’s recent fund manager survey, Mosaic notes “institutional portfolios are the most underweight to commodities relative to bonds since 2008’s financial crisis.” They say that type of herd mentality can reverse fast if commodities start to recover.

“As institutional investors consider their portfolio mix, they could become a source of demand for commodities if momentum picks up. That’s especially the case since commodities are at historically cheap levels relative to equities,” says Mosaic.

They note the ratio of commodities to stock prices is near historic lows, which in the past has triggered a “sharp mean-reversion in favor of commodities.” Their next chart shows the ratio stretching back to 1970 — the rising line shows commodities outperforming stocks, and falling shows the reverse:

“While the current ratio has traded at low levels for much of the past decade, the backdrop is becoming favorable for commodities to outperform off depressed levels,” they say. Add it to all of the above and you get an “attractive risk/reward opportunity.”

Read: The Magnificent 7 are no longer the only stocks driving S&P 500 to record highs

The markets

Stock futures ES00, +0.10% NQ00, +0.65% have erased some premarket gains, with the yield on the 10-year Treasury note BX:TMUBMUSD10Y BX:TMUBMUSD02Y higher. Gold prices GC00, +0.97% are pointing to a new record at $2,2745 an ounce. Most markets in Europe, plus Hong Kong are closed on Monday in observance of Easter Monday. Bitcoin BTCUSD, -1.46% has slipped below $70,000.

The buzz

The final S&P U.S. manufacturing purchasing managers index will be released at 9:45 a.m. Eastern, followed by construction spending and the Institute for Supply Management’s manufacturing survey. Fed Gov. Lisa Cook will speak at 6:50 p.m.

In comments on Friday, Fed Chairman Jerome Powell said he saw neither inflation nor recession risks as elevated. Data the same day showed February’s core deflator, the Fed’s preferred inflation gauge, decelerating. Read more here.

China manufacturing data expanded in March, after five straight months of contraction, indicating a post Lunar New Year holiday rebound in activity.

AT&T stock T, -1.47% is down 1.7% in premarket after the telecoms giant said information that included Social Security numbers and passcodes for millions of current and former customers were found on the “dark web.”

FedEx’s stock FDX, -2.03% is down and UPS UPS, -0.73% is higher after the USPS made changes to its air cargo business.

Nippon Steel’s 5401, -1.47% new president said he’s determined to push forward with a $14.1 billion acquisition of U.S. Steel X, +1.41%.

Turkey’s main opposition party kept control over key cities in Sunday’s local elections, with big inroads elsewhere and a major blow to President Recep Tayyip Erdogan.

What’s worth streaming in April 2024? Hulu and Netflix may offer the best in a vast crop of services.

Best of the web

Baltimore wonders what’s next after Key Bridge’s tragic collapse.

Retailer Brandy Melville is dividing America’s teens

Unraveling Havana Syndrome

The chart

The coming U.S. presidential election will be a tossup, according to this chart from a team at Goldman Sachs led by its chief economist Jan Hatzius, in their new U.S. Election Monitor:

Source: Predictit, Goldman Sachs Investment Research

“The chart shows a polling margin, calculated as described above, in whichever state is the tipping-point state each day after ranking states by their polling margins,” explains Goldman. If there’s no new polling it’s expected to drift along with national polling changes, and the state itself often switches with new polls.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker Security name
NVDA, +1.50% Nvidia
TSLA, -1.05% Tesla
NKLA, +3.72% Nikola
AAPL, -0.72% Apple
MSTR, -1.59% MicroStrategy
NIO, +3.33% Nio
GME, -3.75% GameStop
AMD, +2.76% Advanced Micro Devices
TSM, +4.06% Taiwan Semiconductor Manufacturing
SMCI, +5.00% Super Micro Computer

Random reads

Found under a hotel — 14th century castle with moat.

April Fool’s gags still haunt these companies.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Check out On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching – and how that’s affecting the economy and your wallet. MarketWatch’s Jeremy Owens trains his eye on what’s driving markets and offers insights that will help you make more informed money decisions. Subscribe on Spotify and Apple.


Leave a Comment