Heading into 2023, leading Wall Street prognosticators almost universally predicted plenty of pain for the U.S. stock market after 2022 turned into an annus horribilis. Indeed, many were saying that higher interest rates as well as an eventual economic downturn would tank the stock markets and compound the previous year’s losses. A few contrarian analysts, however, countered by pointing out that the pessimism was overdone and the resilience of the American economy would keep the markets afloat.
Well, it turns out the bulls were right on the money. Far from the doom and gloom that forecasters like Morgan Stanley’s Mike Wilson and JPMorgan Chase & Co.’s Marko Kolanovic had predicted, U.S. stock markets have enjoyed one of the most productive periods in recent decades.
All major stock market benchmarks are sitting at, or close to, all-time highs after enjoying epic rallies. The broad market benchmark, S&P 500, has returned 25.5% in the year-to-date, a stunning comeback after4 last year’s crash and more than double the market’s median annual gain of about 10% since 2000. The S&P 500 is now just eight points away from hitting its record closing high of 4,796.56. The same scenario has played out with the Dow Jones and the Nasdaq Composite with both indices hovering at record highs.
Unfortunately, the same cannot be said about the commodity markets. The Bloomberg Commodities Index (BCOM), a popular benchmark tracked by 23 exchange-traded contracts on physical commodities and more than $100 billion in assets, has cratered nearly 10% YTD, with everything from oil and gas to base metals and grains recording declines. Here’s a rundown of how different commodities performed in 2023.
Energy Commodities
Energy commodities recorded deep losses across the board with WTI and Brent crude oil futures the only energy contracts to post single-digit losses after falling -9.0% and -5.9%, respectively. Gasoline, heating oil, ethanol, refining spreads and Rotterdam coal all record double-digit losses due to weak demand.
Meanwhile, natural gas futures have crashed 43% in the year-to-date to $2.53/MMBtu, thanks in large part to supply outpacing demand.
Precious Metals
Precious metals have performed relatively well in the current year, a rather surprising development given that the Fed raised interest rates as recently as May 2023. Spot gold is up 13.6% while silver has gained 1.4% YTD, with much of gold’s rally coming in the final quarter of the year after the Fed turned more dovish and even signaled a possibility of three interest rate cuts in 2024. The gold rally has coincided with a steep fall in interest rates, with the 10-year Treasury declining from 4.98% in mid-October to 3.84% currently.
That said, platinum group metals (PGM) have not been as lucky, with platinum’s nearly 7% down to $998.70 per ounce while palladium has suffered an even worse fate after cratering nearly 36% YTD to $1,1160.50 per ounce.
Base Metals
3-month COMEX copper, LME copper and tin futures three-month have all posted slight gains in the current year; however, prices of other key base metals including aluminum, nickel, zinc and lead have all declined.
Key battery metals have had a year to forget. After peaking at an all-time high of nearly CNY 600,000 ($84,015) per tonne in November 2022, lithium carbonate prices have crashed to CNY 97,500 ($13,650) per tonne thanks mainly to a global oversupply. The lithium price crash has been so shocking that a Wall Street analyst has predicted the markets could swing in the opposite direction and usher in a lithium shortage as early as 2025.
The same goes for another critical battery metal, nickel, with prices cut nearly in half thanks, again, to supply outpacing demand. The nickel market is facing a supply-demand surplus of 239,000 tonnes, the largest surplus in at least a decade, the International Nickel Study Group (INSG) has reported. That’s way higher than the group’s last forecast whereby it predicted the surplus will clock in at 171,000 tonnes in the current year.
Grains and Soft Commodities
The grains markets have not fared any better, with oat futures being the only grain contract to finish in the green after posting a small 1.2% gain. Soybeans and its associated products and wheat have posted double-digit declines with corn falling the most after plunging nearly 30% in the year-to-date. Meanwhile, lean hog futures have declined 21% YTD while feeder cattle futures have pulled back nearly 20% from the September peak due to an influx of supply.
The wide pullback has come after grain prices soared in 2022 following Russia’s invasion of Ukraine. Favorable weather has led to ample global supplies despite the lapse of the Black Sea Grain deal.