We all know it’s a global bull market. Economies across the global have been suggesting strength to market participants all year. Of late, we’ve really seen signs of economic expansion spill over into ‘proof in the pudding’ indicators. There’s just no doubting global synchronized growth.
First, let’s look at the Baltic Dry Index. ‘BDI’ has been considered a coincident economic indicator. Given that it’s been a decade since the global economy has been in sync, it’s fair to say BDI has lost its attractiveness as an indicator to the general investing populous.
What makes BDI relevant now is it has broken decade-long resistance. This has the look of a move that is just getting started.
Commodity prices are telling us a similar story. In the middle of the summer, Brent Oil started to significantly lead WTI higher as both have now clearly broken out of year long bases.
This is occured right as market sentiment dropped rapidly in the energy space. Behaviorally this tends to happen at important lows, specifically when everyone is looking backwards at the past vs the consolidation of price and potential future catalysts.
Commodity Index CRB sharply rejected new lows this summer in a false break of this range. All of a sudden, energy commodities are ripping hard. Although we can expect the 195 area to provide resistance, a move over 195 suggests another meaningful leg higher is in the cards.
From another perspective (the 3 C’s), we’ve seen leading multinationals like Citi and Caterpillar break long term patterns higher. Paired with ‘Doctor Copper’ it’s clear financials, construction and materials are all in sync as they work higher.
While Caterpillar in particular is extended, some of the biggest tells used to be banks, the baltic dry, and copper. Judging by past market based measures it’s clear the global economy is in full swing. Further if we look at the most relevant analog we have, the 1930’s, interestingly the long term price action for two major banks looks a lot like the indexes coming out of the crisis.
Given the information we have, it appears that the global economic cycle is maturing, but by no means slowing down. It makes sense for investors to prepare for continued global economic strength and thus higher commodity prices in the near to intermediate term.
Thanks for reading.