The Most Important Chart No One is Talking About

March 22, 2011
By Brian Hunt, Stansberry Research

This week’s chart is one from the “broken record” department…

Over the past year or so, we’ve often noted a giant trend you almost never hear about… the tremendous correlation between stocks and commodities right now.

Many investors take a position in commodities like copper, coal, oil, sugar, corn, and cotton thinking they’re diversifying their portfolio. This is often the case. But since the 2009 bottom, stocks and commodities have become joined at the hip… and are trading in one gigantic “risk on, risk off” trade that moves according to sentiment toward global economic growth.

You can see this trend in the two-year performance chart below. It charts the performance of the benchmark commodity index (black line) against the benchmark U.S. stock index (blue line). You’ll note both asset classes sport nearly identical returns… and similar ups and downs. We highlight this trend again because it’s an EXTREMELY IMPORTANT thing to keep in mind when constructing an investment portfoilio.

We keep it in mind when we answer the “should I buy stocks… or should I buy commodities?” question with, “There’s no difference.” Any “risk off” downturn will clobber the entire thing.

– Brian Hunt

Source:  Daily Wealth

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