January 2018

Mean Reversion, a Potential Key 2018 Theme, Favors Commodities (Bloomberg Intelligence) -- The commodity bull market should be just hitting its stride. Relative to its primary drivers -- a declining dollar, rising inflation, demand exceeding supply and expanding global economic growth -- the Bloomberg Commodity Spot Index's four-year high in January is on the right path. What's less clear is how the index will respond when volatility returns to the financial markets. Indications are favorable for commodities and mean reversion in volatility. Energy is a bit too hot, though backwardation will boost total returns. Metals should remain bull stalwarts, but precious outperforming industrials is overdue mean reversion and likely indicates some normalization in stock-market gains. Agriculture, led by the grains in January, may be just getting its game on for demand-driven recovery.