Commodities to Equity Ratio Remains at 50 Year Low: For How Long?
Commodities to Equity Ratio Remains at 50 Year Low: For How Long? That ratio of commodities prices compared to stocks has been at an all-time low for the past few years. However, as the chart shows major unexpected events in the past have triggered a reversal of the commodities to equity ratio. EquiCapita points out that the 50-year average for this ratio is around 1.1 times. During the 1970s commodity bull market the ratio peaked at over 3 times. The ratio is currently at a 50-year low of around 0.2 times, almost the same as the low reached around the 2000 tech bust. Will the ratio change soon? No one can say for sure.
On the other hand, the economy is slowing, and the major stock indexes are at an all-time high. We believe much too high. We should point out that while the major indexes have reached new highs, more stocks in the Nasdaq and NYSE have been declining than going up. Our opinion given these circumstances is that record-breaking stocks prices can’t be sustained, and are certainly are vulnerable to unforeseen events. So what else can we say about this ratio? Although it is not a market-timing tool, it is worth watching.