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Charted: Commodities vs Equity Valuations (1970–2023)

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Charted: Commodities vs Equity Valuations (1970–2023)

Charted: Commodities vs Equity Valuations (1970–2023)

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In recent years, commodity prices have reached a 50-year low relative to overall equity markets (S&P 500). Historically, lows in the ratio of commodities to equities have corresponded with the beginning of new commodity supercycles.

The infographic above uses data from Incrementum AG and Crescat Capital LLC to show the relationship between commodities and U.S. equities over the last five decades.

What is a Commodity Supercycle?

A commodity supercycle occurs when prices of commodities rise above their long-term averages for long periods of time, even decades. Once the supply has adequately grown to meet demand, the cycle enters a downswing.

The last commodity supercycle started in 1996 and peaked in 2011, driven by raw material demand from rapid industrialization taking place in Brazil, India, Russia, and China.

Supercycles in Commodity Prices 1899-19321933-19611962-19951996-2016
Peak year1904194719782011
Peak of supercycle from long-term trend (%)10.214.119.533.5
Trough of supercycle from long-term trend (%)-12.9-10-38.123.7
Length of cycle from trough-to-trough (years)33293420
Upswing (years)5151716
Downswing (years)2814174

Source: Bank of Canada, IHS

While no two supercycles look the same, they all have three indicators in common: a surge in supply, a surge in demand, and a surge in price.

In general, commodity prices and equity valuations tend to have a low to negative correlation, making it rare to see the two moving in tandem in the same direction for any long period of time.

Commodity Prices and Equity Valuations

In line with the above notion, commodity prices and equity valuations have often been at odds with one another in past market cycles.

During the 1970s and early 1980s, for example, rising oil prices led to a significant decline in stock prices as higher energy costs hurt corporate profits. In contrast, during the first half of the 2000s, low oil prices were accompanied by a strong equity bull market that ended with the 2008 stock market crash.

The relationship, however, is not always straightforward and can be affected by various other factors, such as global economic growth, supply and demand, inflation, and other market events.

With the most recent commodity supercycle peaking in 2011, could the next big one be right around the corner?

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Copper

Brass Rods: The Safe Choice

From airbags to firefighting equipment, components made from brass rods play a vital role in creating a safer environment.

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Infographic illustrating how the use of brass rods in water systems and industrial settings can create safer environments.

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The following content is sponsored by Copper Development Association

Brass Rods: The Safe Choice

From airbags to firefighting equipment, components made from brass rods play a vital role in creating a safer environment.

This infographic from the Copper Development Association illustrates three use cases for brass. This is the first of three infographics in our Choose Brass series.

Why Brass?

Brass is one of the most reliable metals for industrial and other applications. It contains little to no iron, protecting it from oxidation, which can cause other materials to fail over time.

Additionally, the malleability of brass ensures tight and leak-free metal-to-metal seals for threaded joints, minimizing the risk of costly and dangerous system failures. Brass’s durability ensures critical system components function properly for years.

Brass for Safe Water Systems

Exposure to lead in water can cause various health problems, including neurological damage, developmental delays, and cardiovascular diseases.

As a result, the U.S. sets minimum health-effect requirements for chemical contaminants and impurities indirectly transferred to drinking water from products, components, and materials used in water systems.

Currently, only brass rod alloys are designated as “acceptable materials” according to national standards.

Brass is also essential for ensuring workplace safety, particularly in high-risk manufacturing environments.

Using Brass for Safe Manufacturing and Industrial Environments

Brass is used extensively in industrial applications such as machinery components, valves, fittings, architectural elements, bearings, and gears.

The machinability of brass rods also means longer tool life and higher productivity for manufacturers of precision parts.

The microstructure of brass helps break up metal chips generated during machining operations, preventing long and stringy chips that can crash machines and seriously injure operators.

Additionally, brass’s non-sparking properties make it ideal for tooling, fittings, and components in high-risk industries such as oil & gas, chemicals, pharmaceuticals, paint manufacturing, power plants, and explosives.

Brass for Safer Communities

Many pieces of equipment in our daily lives also rely on brass rod parts to function. Control valves in gas stoves, BBQs, and home furnaces made from brass rods reduce the risk of deadly gas leaks and fires.

Moreover, brass is ideal for firefighting equipment due to its corrosion resistance, durability, heat resistance, and non-sparking properties.

Fittings made from brass rods ensure that the brakes and airbags in our vehicles work when needed.

Brass and other copper-based alloys are also naturally antimicrobial, helping prevent diseases when used in high-touch surfaces such as door handles.

These are only some of the ways that brass rods help build a safer world for everyone.

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Explore the advantages of brass rod solutions.

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