A refiner pours bars of gold at Agnico-Eagle's Meadowbank Mine facility in Meadowbank Mine, NunavutSean Kilpatrick
It's not easy holding commodity stocks these days. The three-day downturn that has defined most of this week's stock market action has certainly hit commodity producers hard – indeed, far harder than the commodities themselves.
Canada's S&P/TSX composite index, which has about a 50 per cent exposure to commodities, is on track for a third down day on Friday, shedding a total of about 486 points or 3.9 per cent. That's but a flesh wound next to the materials subindex, which has fallen 7.2 per cent. Energy stocks have fallen 4.9 per cent.
Meanwhile, the Reuters/Jefferies CRB index of 19 commodities has held up reasonably well – or at least a lot better than the producers. The index has fallen just 1.8 per cent over this three-day period, and was up a little on Friday. And in terms of high-profile commodities, crude oil has fallen 2 per cent and gold has fallen 2.8 per cent, similarly with gains on Friday.
Within the S&P 500, commodity producers have also been leading the retreat over the past three days. The broad index has slumped about 1.6 per cent, but materials are down 2.9 per cent and energy stocks are down 2.8 per cent.
Still, the focus here might be on the commodity prices themselves. Cam Hui, who writes the Humble Student of the Markets blog, pointed out earlier this week that commodities are an indicator of global growth and inflation expectations – and they have been rolling over, with the previous uptrend "broken."
"The commodity complex is highly sensitive to Chinese growth and there has been much concern about the near-term trajectory of China's growth outlook," he said. "Indeed, a glance at the Shanghai composite confirms the level of investor nervousness as that index as moved into a minor downtrend."
David Berman