Thursday, March 28, 2024
HomemarketsWall Street analysts are betting on another red-hot commodity rally before year-end

Wall Street analysts are betting on another red-hot commodity rally before year-end

  • As of Friday, the UBS CMCI (Constant Maturity Commodity Index) had fallen by around 11% from its peak in early June, while performance in July was flat, but was still up 16% year-to-date.
  • UBS maintains expectations for 15-20% returns across commodities over the next six to 12 months.
  • Goldman therefore forecasts the S&P GSCI commodity index rallying 23.4% by the end of the year.

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Traders, brokers and clerks on the trading floor of the open outcry pit at the London Metal Exchange in London, U.K., on Monday, Feb. 28, 2022.Chris J. Ratcliffe | Bloomberg | Getty Images

Commodities have broadly pulled back from their recent peaks, but Wall Street analysts say the fundamentals are pointing to another rally by year-end.

As of Friday, the UBS CMCI (Constant Maturity Commodity Index) had fallen by around 11% from its peak in early June, while performance in July was flat, but was still up 16% year-to-date.

In a research note Friday, UBS Global Wealth Management strategists said the supply-side constraints that underpinned the surge in commodity prices in the first half of the year had taken a backseat to the deteriorating outlook for global economic growth, a strengthening U.S. dollar and China's housing predicament.

Although commodity prices could fall further in the event of a deep recession for the global economy, UBS GWM Chief Investment Officer Mark Haefele and his team suggested a "soft landing" is now as likely as a pronounced slowdown.

They added that "overly bearish calls on commodity markets do not fully account for supply-side dynamics."

"In general, commodity supply is constrained due to years of underinvestment — official inventories are low across multiple sectors — and because of weather-related and geopolitical factors. Meanwhile, we see positive demand trends," Haefele said.

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