So far in 2022, sky-high commodity prices have plagued equity markets, as input prices surged for corporations, consumers have faced record-high gas prices, and families are forced to spend A LOT more on food.

Unsplash

This led to a compression in discretionary budgets among consumers, record-low consumer confidence readings, and multi-decade lows in investor sentiment. Yesterday, commodity prices crashed as speculators feared demand destruction due to rising recessionary risks. Although the reasoning for the selloff is certainly not positive for the broader economy, investors breathed a sigh of relief as one of the major economic/market headwinds eased. 

In fact, yesterday’s move was the third-largest downside move in the Invesco DB Commodity Index ETF (DBC) since its inception in 2006, falling short of just two occurrences in March 2020 and March 2022. Following yesterday’s decline, DBC is now down over 18% from its June 9th high and up ‘just’ 20.2% YTD. Over the last 12 months, though, DBC is still up 73.6%.

Following the other nine worst days in DBC’s history, the median forward performance has been relatively weak, which by itself, is a positive for corporations and all other commodity consumers. In the next week, DBC has only performed positively one-third of the time, booking a median loss of 2.7 percentage points. Over the following three months, DBC has appreciated 56% of the time and has tended to remain flat on a median basis. In three of the nine prior occurrences, DBC rallied 18% or more over the next three months, while it declines 29% or more twice. 

More By This Author: