Commodities are Getting Killed

This morning, stock markets are down in Asia and Europe.  And Futures show a likely decline in the U.S.

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What’s happening?  I think we are seeing the March rally hitting the wall as the technical recovery everyone is anticipating looks to come later and to be less robust. As a result, commodities are selling off horribly.  Crude has traded under $65 and is down over 3%.

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For me, Alcoa’s Wednesday report will give a good sign of how robust the economy is as basic material stocks should do well in an upturn.  In a post in late May Consumers ‘do believe in the green shoot story’, I indicated that June and early July would be key for this overbought market.

Let’s remember that confidence does not translate into consumption, especially as most of the uptick here was in consumer expectations.  Nevertheless, this has grabbed the market’s attention and U.S. stocks are up well over 2% as I write this.  If you were wondering whether the powerful market rally from March has legs, this should come as proof that it does.  The S&P 500 is now above its 20-day average trendline again.

I should caution that an uptick in expectations of this magnitude has a dark side.  If the economic data disappoint in June, we could see a sharp selloff.  That makes the June data and the early July earnings reports very crucial data points.

And I still believe this is true.  The June economic data was not nearly as good as market experts expected and the market has sold off as a result.  he employment data last week was truly dreadful.  If we get poor earnings here in July, this bear market rally is going to get cut down to size.

Key sectors to watch are financials and basic materials.

Sources

Commodity Futurest.gif – Bloomberg CNN Money Pre-Market Datat.gif – CNN Money

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Originally published at Credit Writedowns and reproduced here with the author’s permission.