What this commodities ratio could say about the year ahead for equities

The Morning Wrap

Livewire Markets

MARKETS WRAP

Source: Investing.com

S&P 500 TECHNICALS

Source: Yahoo Finance

THE CALENDAR

Source: Forex Factory

Today begins day one of the traditional two-day deluge that is US labour force reporting. Earlier today, we had the US ADP report and JOLTS job openings. There used to be a reliable correlation between the ADP report and non-farm payrolls (i.e. the main, government-produced jobs report) but that correlation detached during the pandemic. 

Finally, there's a speech from Fed Chair Jerome Powell at the Brookings Institution in Washington. Remember, the last time Powell made a major public appearance, he shot the markets' hopes of a pivot down. 

THE CHART

Copper is a bellwether for the global economy - it does well when industrial activity is strong (if you don't believe me, take a look at the price of copper before China went into lockdown). In contrast, gold is a precious metal that is considered a form of money. It's a safe haven when risk assets are going bad and it also does well when people look for hedges for lower real rates. 

But when you pair the copper spot price to gold spot price ratio and stack it up against the S&P 500 EPS ratio, there is (usually) a fascinating correlation in terms of performance. If 2023 really does mark a return to normality in markets, then be prepared to see the equity market turn lower again next year.

CHART OF THE WEEK

Source: Societe Generale

My chart of the week takes a look at the growth vs value trade - and how long it took for growth stocks to recoup their losses following the burst of the dot com bubble in late 1999/early 2000. Value, in contrast, continued to climb until the end of 2006 when that investment strategy finally started to roll over. Perhaps it suggests value could be in for a multi-year period of outperformance.

Note: This weekend's episode of The Rules of Investing with David Thornton will analyse the new regime for growth-oriented investing with Sam Ruiz of T. Rowe Price. Follow the profile to know when the episode goes live.

STOCK TO WATCH

Just one stock to watch today, and it's not a finger-lickin' good one. Following its November full-year result, the share price of Collins Foods (ASX: CKF) was well and truly fried. The broker observes price increases can only go so far and that rising inflation and interest rates are likely to put a brake on consumer spending. The price target is kept at $8.20/share.



Hans Lee wrote today's report. 

GET THE WRAP

If you've enjoyed this edition, hit follow on this profile to know when we post new content and click the like button so we know what you enjoy reading.

If you have a chart and/or a stat that you would like to see featured in a future edition of the newsletter, drop us a note at content@livewiremarkets.com.

........
Livewire gives readers access to information and educational content provided by financial services professionals and companies (“Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

1 stock mentioned

1 contributor mentioned

The Morning Wrap
Markets Wrap
Livewire Markets

Australia's most comprehensive markets wrap is back for 2023, with a fresh look and a new emphasis on getting you and your money ahead of the curve. Available each weekday morning at 8:30am AEDT. Written by Chris Conway, Kerry Sun, and Hans Lee.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.