One of the markets theories I was taught when I was young was that when oil prices are up over 50% year on year, the S&P 500 does poorly. Oil is certainly up over 50% year on year.
But rather than being a bearish signal, markets seem to think its a bullish signal.
I had also learnt to be cautious when gold starts to outperform the S&P500 - a sign that capital no longer felt safe in growth assets. Gold WAS outperforming the S&P 500, but not so much now.
Why did moves in commodity markets used to be bearish - but not now? In 2022, surging oil price did lead to weakness in US equities. What has changed? One guess is that normally, when oil prices and gold prices are surging, food inflation is also surging. Below is US Food CPI YoY. This is a lagging indicator, but you can see when food prices rise - problems for equities begin.
Above is a lagging indicator, but we have a more forward looking one. The CRB Foodstuff index. Here we can see spikes in food prices tend to lead to problems in markets.
For the US, I have found the wheat price is a good one to watch (its called the bread line for a reason). It is up from lows, but not much.
One argument you could make is that rising oil prices pushes up Urea price, and food prices with it. Maybe. But potash prices are still pretty low.
Another big counter argument is that the wholesale price of pork in China has collapsed, which means Chinese grain imports are also likely to collapse. Or in other words, global food inflation looks unlikely.
I have looked at agricultural markets for over 20 years - and they are by far the toughest markets to understand. Usually with commodities, supply is easy to model, but demand can fluctuate. With ags, demand is usually pretty constant, but supply can change rapidly. The big question is whether food prices are about to surge here or not? Or will that happen with a lag, as higher energy prices cause food production to fall in a year or two time? Personally, I can not generate a strong view on whether food inflation will surge or not from here, but it does seem to be the missing link between gold, oil and equities.
