Is The Dip In Commodities A Buying Opportunity?

After an explosive start to 2024, which has seen Commodities across the board hit new multi-year and all-time record highs – prices have pulled back this month as trader’s bank windfall profits to offset losses in other asset classes such as Equities.

According to JP Morgan, the $2 trillion selloff in Equities this month could be the start of a bigger correction ahead – especially with expectations fading that the Federal Reserve will cut interest rates, signs of inflation remaining sticky and stocks still trading at higher-than-average valuations.

The current market narrative and patterns are increasingly resembling those of last summer, when upside inflation surprises and hawkish Fed revisions drove a correction in risk assets. This time around, however, the sell-off is likely to deepen as traders scale back bets on rate cuts – with consensus shifting from as many as seven cuts this year in January to now less than two.

JP Morgan’s Call to Sell Stocks and Buy Commodities

In a note to clients on Monday, JP Morgan advised staying defensive, with the Equities backdrop looking “Problematic”. The banks analysts closed the note by reissuing their call to “Sell Stocks and Buy Commodities”.

While the fundamental picture looks increasingly volatile and uncertain for Stocks – on the flipside the fundamental backdrop continues to remain ultra-bullish for Commodities due an ever-growing number of macro and geopolitical tailwinds that are currently unfolding.

These include; persistent geopolitical tensions, strong central bank purchases, growing demand from China as a hedge against economic instability in the world’s second-largest economy, along with November’s high-stakes U.S presidential election.

And last but definitely not least – the global supply crunch, which is whipping up an unprecedented phenomenon known as a “Super-Squeeze” – sending Metals, Energies and Agricultural markets on a parabolic run that shows no signs of slowing down anytime soon.

Seizing Opportunities in the 2024 Commodities Market

To quote analysts at GSC Commodity Intelligence – “This is the pullback so many traders who missed out on the first leg of the current Supercycle in Commodities have been waiting for”.

A view, which has been reiterated by Goldman Sachs, citing that Commodities are currently only at “the foothills of what will be their Everest”. Ultimately suggesting that prices are only heading in one direction from here.

And that’s higher, a lot higher!

Whichever way you look at it, one thing is clear. The macro backdrop for Commodities in 2024 is looking more bullish than ever before – and it certainly won’t take much for prices to breach new record highs in the coming weeks and months ahead. When Commodities go on sale like they are right now, you have to buy them because in this economic environment prices won’t stay cheap for long.