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Commodities have been through more than a few bumps over the past several years, but they have always bounced back to new highs. Is this latest bump anything different?

Skeptics have been noting for some time that the fundamentals supporting commodity prices - the strong demand from China, the weak U.S. dollar, the threat of rising inflation and the uncertain geopolitical situation in many parts of the world - no longer explain the rise this year that sent the charts of many commodity prices into an unsustainable parabolic surge.

Speculators, it seems, have been providing the main thrust as they seek refuge from volatility. However, with the U.S. equity market suddenly looking healthier following aggressive rate cuts by the U.S. Federal Reserve, there is likely a rush for the exits now that is also driving the Canadian dollar down.

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What's for sure is that the consequences of a protracted downturn are nasty. Commodity producers represent about half of the market capitalization of the S&P/TSX composite index, against just 18 per cent for the S&P 500.

Myles Zyblock, a strategist at RBC Dominion Securities, noted that if you took out commodity producers from the index, it would have fallen nearly 19 per cent from its high last October, as of Wednesday morning.

"The Canadian market tends to suffer relatively more when the U.S. hits recession, thanks in large part to its heavier weighting towards resource sectors," Mr. Zyblock said in a note. "Because these sectors tend to prosper late in the cycle, there is a possibility that the worst is yet to come."

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