Pro Perspectives 12/18/20

December 18, 2020

We're nearing the finish of a chaotic year at (or near) some important round numbers in key markets.  The S&P 500 is around 3,700.  Oil near $50.  The 10-year yield nearing 1%.  And the dollar index is at 90. 

Translation:  Stocks are on record highs. Interest rates are near record lows.  The dollar is weak.  And energy is relatively cheap. 

If you just had that information to go on, you would probably say the outlook looks very good for economic activity. 

As we end the week, let's take a look at some key charts …

First, let's take a look at stocks.

As we discussed earlier this week, small cap stocks historically perform best coming out of recession. And you can see in this next chart, that dynamic has really kicked in over the past six weeks.  


Now, we've talked about the repricing of global assets, thanks to the explicit devaluation of money by global central banks.  And as you can see in this chart of broad commodities, it's still in the very early stages.  

And with most commodities priced in dollars, the outlook for a continued bear market for the dollar (and maybe acceleration of the decline) is fuel for the young bull market in commodities.