Copper and the S&P 500® have tracked each other quite closely during the past 16 months, both falling sharply at the outset of the pandemic only to rebound spectacularly. The S&P 500 is up about 30% from pre-pandemic levels while copper has outperformed, rising over 60% (Figure 1).
While copper and U.S. equities have generally moved together, one could argue that their rallies over the past 13 months were driven by very different factors. “Dr. Copper” is often seen as a proxy for the health of global industry and manufacturing. By contrast, equities are, in theory, a discounting machine, using interest rates to bring future cash flows from businesses such as earnings and dividends into the context of the present. Although equities and copper have tended to correlate positively over the past four decades, and especially so during the past 20 years (Figure 2), they perform very differently in different environments (Figure 3), and the ratio of S&P 500 to copper can vary considerably over time (Figure 4).
Here are some factors to look at that might influence the relative performance of equities versus copper.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
Erik Norland is Executive Director and Senior Economist of CME Group. He is responsible for generating economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact on CME Group and the company’s business strategy, and upon those who trade in its various markets. He is also one of CME Group’s spokespeople on global economic, financial and geopolitical conditions.
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