The Conversation (0)
After getting close to the 18,000 mark last week, the Dow Jones broke through on Tuesday to close above that level for the first time ever.
The Dow gained 64.73 points to finish at 18024.17, while the S&P 500 rose 3.63 points to hit 2082.17, according to the Wall Street Journal. Both indices have hit multiple highs this year.
Driving that change was better than expected US economic data. The Commerce Department reported that the country’s GDP grew at an annual rate of five percent for Q3 – the best showing since the same quarter 11 years ago. Certainly, analysts were positive on the performance. “The market was roaring yesterday, and going into the end of the year it keeps pushing higher,” Stephen Carl of Williams Capital Group LP told the Financial Post.
Similarly, David Wartenweiler, chief investment officer at Habib Bank AG in Zurich told the publication that the record breaking rises could be attributed to the Fed’s patience with raising interest rates as well as a a correction against earlier selloffs. “Part of the rebound we’re now witnessing has to do with the realization that the selloff was overdone,” he said. “The U.S. economy is really on track to continue to grow at a healthy pace.”
Where is Dr. Copper?
Of course, resource investors will be wondering what a surging market means for metals and mining. In particular, those watching the base metal market will have noticed that despite the apparently strong market, copper actually dipped to $2.86 per pound.
Explaining the situation, Stefan Ioannou of Haywood Securities said that while there were certainly positive demand implications tied to the Dow’s rise, a strong US market might simply be overshadowed by other factors when it comes to copper.
“The big driver on copper in particular is not so much the demand but the looming supply right now,” he said. “There’s definitely a glut of supply out there, and unless [demand] was to skyrocket beyond anyone’s expectation in the short term, working through that supply is the bigger concern.” Of course, concerns over weaker demand from top consumer China also put pressure on copper prices on Tuesday.
While a strong US market paints a good picture for the economy and for many metals used in manufacturing, Ioannou pointed out that wouldn’t necessarily translate into an immediate quantitative uptick. “Does it mean that copper’s going to skyrocket to $3.25 per pound tomorrow morning? Probably not,” he said.
What about other commodities?
Tekoa Da Silva, Investment Executive at Sprott Global Resource Investments, saw weak oil prices as having more of an impact on commodities.
“I think the recent weakness in the price of oil might be more impactful on commodity demand over the next two years (if it sticks) as opposed to the relentless strength we’re seeing in the overall equities market,” he told Resource Investing News by email, noting that with a low oil price, people have more income to spend on consumer goods. He also added that sustained lower energy and higher equity prices “might help kick off much higher levels of consumption of luxury goods commodities, such as diamonds, gemstones, etc.”
Meanwhile, he suggested that struggling commodities such as iron-ore wouldn’t be helped much by the Dow Jones doing well. “Those commodities that are working through bear markets now, are searching for their respective bottoms, to be found over the next 3-5 years, independent of what U.S. equities markets do,” he said.
That might not be what some resource investors were hoping to hear. Nevertheless, Ioannou agreed that the rise was good for market sentiment, and that “every little bit helps.”
“It’s a great move for the markets in general,” he said. “From a sentiment point of view, it’s definitely a nice way to finish the year.”
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.