Dr Copper says “No!”

Copper and The S&P 500 since the credit crunch

Copper is an interesting commodity, primarily because of it’s importance in economic activity. Consumers of the commodity will purchase it in advance of its use simply to insure they’ve got adequate supply; that makes it an interesting indicator of the stock market.

The chart above shows the weekly performance of both copper ($COPPER, black line) and the S&P 500 ($SPX, red line) since the onset of The Credit Crunch; the correlation is a very high 0.77, indicating they tend to move together. That’s great about the past but what about the future?

The chart below shows the copper and the S&P 500 year to date; so far copper is off -2.25% while the stocks has risen a modest 5.29% – they clearly are diverging but whats it mean? There are several possible interpretations, but if assuming nothing structural has taken place I suspect US equities are getting a little pricey and due for a correction in the short term. Some folks think the relationship between copper and stocks has changed, and the metal now reflects Chinese economic activity while others disagree, suspecting Chinese are importing copper simply to circumvent currency controls.

Copper and The S&P 500, year to date, 2012

Copper and The S&P 500, year to date, 2012

Comments are closed.