Commodity investors have had to endure a dry spell for a while now, but those days are starting to look as if they might be behind us. We see encouraging signs that a bottom has been reached and a new commodities super-cycle has begun, as global manufacturing expansion and inflation are finally gathering steam following the financial crisis more than eight years ago.
As a group, commodities had their first positive year since 2010, ending 2016 up more than 11 %, as measured by the Bloomberg Commodity Index.
A large percentage of this growth occurred in the days following the U.S. election, suggesting the reflation trade is officially in motion, which should be supported in the coming weeks and months by President Donald Trump’s pro-growth policies.
Just this week, Trump signed executive orders to proceed with the controversial Keystone XL and Dakota Access pipelines, emphasizing that the steel to be used in their construction will be American-made. Following the announcement, stock in energy infrastructure company TransCanada, which is expected to resubmit plans for the pipeline after it was rejected by the Obama administration, immediately hit a new high, while shares of several steel companies traded up.
Between Election Day and Inauguration Day, the commodities index rose 5.4 %, with double-digit growth in crude oil (up 17.1 %), copper (10.5 %) and iron ore (17.7 %).