Commodities Rallied For A Third Week

Broadly defined commodities recovered lost ground last week, marking the third straight weekly gain. Once again, the rise delivered the strongest weekly advance for the major asset classes, based on a set of exchange-traded funds through Friday, May 15.

The iShares S&P GSCI Commodity-Indexed Trust (GSG) edged up 0.7%. The fund ended last week at its highest close since Apr. 17.

Despite the recent rally, the longer-run trend for GSG remains deeply negative. Thanks to a dark aura hanging over the global economy’s near-term outlook due to coronavirus blowback, the odds appear low for a sustained rally in commodities for the immediate future.

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A related risk factor for the global outlook: rising trade tensions between the US and China, the world’s biggest economies. “We are increasingly concerned about US-China trade risks, as China will be unable to meet ‘Phase 1’ trade commitments and is facing criticism about the way it has handled COVID-19,” Bank of America’s foreign exchange analysts wrote in a research note today.

Overall, most of the major asset classes posted losses last week. The biggest setback: US real estate investment trusts (REITs). Vanguard Real Estate (VNQ) shed 8.3%, leaving the fund close to its lowest close in over a month. Commercial property is being repriced for a new world order of softer demand for office space as a greater share of the workforce works from home.

The downside bias in asset prices overall took a bite out of an ETF-based version of the Global Markets Index (GMI.F) last week. This unmanaged benchmark that holds all the major asset classes (except cash) in market-value weights via ETFs slumped 1.8%–the index’s first weekly loss in three weeks.

Ranking returns for the one-year window continues to show a broad measure of US investment-grade bonds in the lead for the major asset classes. Vanguard Total US Bond Market (BND) is up 10.3% on a total-return basis for the trailing one-year period after factoring in distributions.

At the far end of the spectrum for loss: commodities remain the worst one-year performer by far. Despite the recent rally, GSG has tumbled a hefty 43.6% at Friday’s close vs. the year-earlier price.

GMI.F slipped back into negative terrain for the one-year trend after last week’s loss. This multi-asset-class benchmark is off 1.3% for the past year.

Ranking asset classes via current drawdown still reveals a wide range of results, ranging from the deep 74% peak-to-trough decline for commodities (GSG) to the fractional drawdown for US investment-grade bonds (BND).

For comparison, GMI.F’s current drawdown is -12.5%.

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By James Picerno

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