Dow Jones
DJIA 1,000-Point Thresholds (Bespoke)
Tuesday, May 7th, 2013
The DJIA crossed above 15,000 for the first time ever today, but it has since fallen back below that level in afternoon trading. Whether or not the index will finish the day above that key threshold is unknown, but as of today it has been 2,115 days since the DJIA last crossed and closed above a thousand-point threshold for the first time.
In the table below, we list the first day that the DJIA closed above each thousand-point threshold from 1,000 to 14,000. Given the law of large numbers, with each thousand point threshold crossed, the percentage gain needed to cross the next threshold declines. For this reason, the amount of time that has elapsed between 14K and 15K is even more noteworthy. To get from 2K to 3K, the DJIA rallied 50% in the span of 1,560 days. To get from 14K to 15K, though, the DJIA only needed to rally a little over 7%, but it still hasn’t been able to do so after more than 2,000 days!
In the above chart it is also interesting to note how minor the 1987 crash now looks more than 25 years later. While the drops from 2000-2002 and 2007-2009 still look daunting in the chart, we can only hope that 25 years from now the DJIA has risen enough that those declines look like nothing more than a small blip!
Copyright © Bespoke Investment Group
Tags: DJIA, Dow Jones, Dow Jones Industrial Index
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Groundhog Day: Will September’s Sell-off Repeat?
Tuesday, August 21st, 2012
by Russ Koesterich, Chief Investment Strategist, iShares
Come September investors might feel as if they are trapped in their own version of Groundhog Day. Last year, the Dow dropped 6% in September. Given the month’s consistently negative bias and lingering headline risks, there is a reasonable chance markets will come under pressure again this year.
While investors often pay too much attention to the calendar, September is the notable exception. Looking at data on the Dow Jones Industrial Average, which stretches back to 1896, September has historically been the worst month of the year, with an average return of slightly worse than negative 1%. This is the only month of the year for which the seasonal bias is so great as to be considered statistically significant.
The tendency for markets to fall in September is also evident when you look at the win rate – how often equities move higher. The win rate in September is barely 40%, versus nearly 60% for the other 11-months. Finally, this phenomenon is not limited to the United States. September has historically been the worst month of the year in a number of European markets – including Germany and the United Kingdom, as well as in Japan.
In addition to a negative seasonal bias, there are three other reasons to be concerned about the headline risk to the markets in the coming weeks:
- On September 12, the German Constitutional Court will rule on the constitutionality of the European Stability Mechanism (ESM). Investors currently expect a favorable ruling, so any other outcome is likely to be disruptive.
- The Netherlands holds an election, also on September 12. This is risky for markets as the outcome may very well be a fragmented government, which will call into question the commitment of the Dutch to further fiscal integration and their support for the southern European countries.
- Closer to home, the US Federal Reserve will begin two days of deliberation on September 12 about the economy and monetary policy. Many investors are still expecting, or at least hoping for, an extension of the Fed’s quantitative easing program, but there is considerable scope for disappointment should the central bank stand pat.
In addition to headline risk, there has been a growing complacency in global equity markets. This trend is particularly evident when looking at implied volatility, or the VIX Index. In mid-August the VIX went below 15, well below its long-term average. While there are several technical reasons that the VIX is this low, it should still concern investors. A low VIX reading indicates weak demand for put protection, suggesting that investors are not particularly concerned with downside protection. Previous readings in this vicinity – in March of 2012 and the spring of 2011 – coincided with short-term tops.
How should investors position their portfolios? While I still prefer equities over the long-term, this is probably a reasonable time to consider trimming back on positions and looking for instruments that offer the potential for downside protection. One way to achieve this is to re-allocate from a cap-weighted exposure into a minimum volatility fund, or other instruments which tend to have a lower market beta.
For investors looking for global exposure, I like the iShares MSCI ACWI Index Fund (NYSEARCA:ACWI), the iShares MSCI All Country World Minimum Volatility Index Fund (NYSEARCA:ACWV), or the iShares S&P Global 100 Index Fund (NYSEARCA:IOO).
Source: Bloomberg
Russ Koesterich, CFA is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog. You can find more of his posts here.
The author is long IOO.
In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Minimum volatility funds may experience more than minimum volatility as there is no guarantee that the underlying index’s strategy of seeking to lower volatility will be successful.
Index returns are for illustrative purposes only. Indexes are unmanaged and one cannot invest directly in an index.
Tags: Chief Investment Strategist, Constitutionality, Deliberation, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, European Markets, European Stability, Federal Reserve, German Constitutional Court, Groundhog Day, Investors, Koesterich, Month Of The Year, Negative Bias, Netherlands, Phenomenon, Russ, Southern European Countries, Tendency, Us Federal Reserve
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Sector Relative Strength: Defensives Topping
Friday, August 10th, 2012
The charts below show the relative strength of the ten S&P 500 sectors as well as the Dow Jones Transports and the Russell 2000 relative to the S&P 500 over the last year. When the line is rising it indicates that the sector is outperforming the S&P 500, while a falling line indicates underperformance. We have also shaded each sector in red or green to indicate whether the sector has outperformed (green) or underperformed (red) the S&P 500 over the last year.
As was the case the last time we looked at sector relative strength, over the last year six sectors have outperformed the S&P 500 while four have underperformed. One shift that we have seen in the last two weeks, however, is that some of the defensive sectors have started to underperform. Look at the charts below and you will see that Consumer Staples, Health Care, Telecom Services, and Utilities have all started to roll over to varying degrees. For Consumer Staples and Utilities, both sectors are close to dipping into the red in terms of relative performance over the last year. While defensives have seen slowing momentum, sectors picking up the slack include Energy, Industrials, and Technology.
Typically, when the market is in rally mode, you often see outperformance on the part of the Transports and Small Cap Stocks. In the current leg higher, however, both indices have been lagging, and both are underperfoming the S&P 500 by a considerable margin over the last year. In the case of the Russell 2000, the index has made a modest rebound over the last few days (post Knight Trading trade glitch), but it needs to string together another week or two of outperformance before we could confidently say that small caps are participating.
Copyright © Bespoke Investment Group
Tags: Amp, Consumer Staples, Dow Jones, Dow Jones Transports, Glitch, Industrials, Investment Group, Knight Trading, Last Time, Momentum, oil, Rally Mode, Rebound, Relative Performance, Relative Strength, Russell 2000, Sectors, Slack, Small Cap Stocks, Small Caps, Telecom Services
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Keep an Eye on May Stock Market Peaks, says Richard Russell
Thursday, August 9th, 2012
Richard Russell, 88-year-old writer of the Dow Theory Letters, called a bear market for U.S. stocks a few months ago. An update on his latest thinking is reported below.
Question: Richard, everybody has emotions. So where are your emotions regarding this market? From an emotional standpoint, be honest, are you really bullish or bearish?
Answer: If the Averages confirm that this is truly a bear market, I’ll have mixed emotions. On the one hand I will have been proven right on my bear market call, and that will be a boost to my ego. But I can’t say I’d be happy we’re in a primary bear market.
But if the Averages close above their May peaks, and all my charts point to a bull market, I’ll have been proven wrong on my bear market call, and that will be a bruise to my ego.
Source: StockCharts.com
Nevertheless, I’d much rather be living through a bull market than a bear market – a bull market would be far better for me and my kids and for my business. So call it strange, but from an emotional standpoint I’d prefer to have been wrong on my bear market call, and I’d prefer that we’re in a re-confirmed bull market.
Therefore, instead of confusing my subscribers with a lot of ego-boosting baloney, I’m just going to call this market the way I see it, being as honest and unemotional as I can possibly be.
If we are truly in a primary bear market, I have an intuition that it could turn out to be the worst bear market in history – and that’s another reason why I secretly hope I have been wrong on my bear market call.
Another intuition – we will know the final answer as to whether we’re in a bull or bear market by October.
[PduP: Yesterday's closing levels of the benchmark U.S. indices were within reach of the May peaks: Dow Jones Industrial Average – 13,176 vs 13,279 and S&P 500 Index – 1,402 vs 1,419.]
Source: Dow Theory Letters, August 7, 2012.
Tags: Amp, August 7, Baloney, Bear Market, Bruise, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Dow Theory Letters, Ego, Final Answer, Intuition, Mixed Emotions, Richard Russell, Standpoint, Stock Market, Stocks, Strange, Subscribers
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Mythbusting: How Elections Affect Markets
Friday, August 3rd, 2012
by Russ Koesterich, Chief Investment Strategist, iShares
Elections do matter for the markets, but not necessarily for the reasons that investors tend to believe. Ahead of the US presidential election in November, I’m going to attempt to debunk some of the common myths surrounding markets and elections:
Myth #1: Party affiliation matters when it comes to market returns.
There is little to no evidence to support the fact that the winning candidate’s party makes a difference to markets. Over the past century, which party occupies the White House has had no discernible or consistent impact on US equity markets. Since 1900, when a Democrat has been in the White House, the average return for the Dow Jones Industrial Average has been around 8.5%; for Republicans the average is around 6% (neither average includes dividends). When you adjust those averages for the market’s volatility, the numbers are statistically the same. In other words, the party affiliation of the president has had no consistent influence on stock market performance, though many investors still believe this.
Myth #2: Divided government is good for the financial markets.
Following the halcyon days of the 1990s, many investors have come to believe this myth. While divided government was certainly good for markets in the 1990s, that seems to have been an anomaly. The 1990s were unusual and were a function of many factors, including a secular drop in interest rates, a productivity surge, and the taming of inflation. Unfortunately, conditions are very different today.
Looking at the last century of data, there is no evidence that divided government produces better returns. In fact, in the past equities appear to have actually done better when one party has controlled both Congress and the White House, though the numbers backing this better performance aren’t statistically significant and should be taken with more than a grain of salt.
What Does Matter: Policy
None of the above implies that the outcome of this election is irrelevant for financial markets. While politicians cannot fix much of what ails the global economy, sensible economic policy would help mitigate the damage. There is also quite a bit that politicians can do to make matters worse. In short, as I write in my new Market Perspectives piece, the election will matter a great deal.
There are a number of issues, both long and short-term, which can only be solved in Washington. The absence of progress will likely worsen the economic malaise and in the case of the fiscal cliff push, the United States back into recession. On the other hand, real progress on taxes and entitlements could remove at least some of the headwinds holding back growth.
Both the fiscal cliff and the entitlements issue are extremely important to the capital markets. Evidence that we’re not doing everything we can to resolve them is likely to push stocks lower and volatility higher. To state the obvious, should we allow this to occur it would be a game changer for US financial markets.
If we wake up on the morning of November 7 with continued divided government and no consensus on reform and then no consensus is reached before the fiscal cliff hits in January, investors may want to consider opting for these five portfolio moves:
1.) Less equity exposure
2.) A higher allocation to defensive sectors like consumer staples and healthcare, accessible through the iShares S&P Global Consumer Staples Sector Index Fund (NYSEARCA: KXI) and the iShares S&P Global Healthcare Sector Index Fund (NYSEARCA: IXJ).
3.) Less credit exposure in the fixed income section of their portfolios
4.) A smaller allocation to commodities
5.) A higher weight to dollar-denominated assets
Source: Bloomberg
Russ Koesterich, CFA is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog. You can find more of his posts here.
In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments typically exhibit higher volatility.
Copyright © iShares
Tags: 1990s, Anomaly, Chief Investment Strategist, Common Myths, Democrat, Dividends, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Financial Markets, Grain Of Salt, Halcyon Days, inflation, Ishares, Koesterich, Myth 2, Party Affiliation, Russ, Stock Market Performance, Us Presidential Election, Volatility
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What History Suggests About the Future of Stocks
Thursday, August 2nd, 2012
by Seth Masters, Chief Investment Officer, AllianceBernstein
Some experts today argue that the world has entered a “New Normal” condition in which stocks have permanently lost their return edge. We’ve heard this before. It was wrong then, and we think it’s wrong now, too.
In 1979, BusinessWeek published a cover story famously called “The Death of Equities.” Then, like now, stock market returns had lagged 10-year Treasury returns for a decade, although for somewhat different reasons.
Stock returns had been dragged down by the bursting of a bubble (the Nifty Fifty) and bleak economic conditions. OPEC had unleashed its second oil-price shock in five years. The so-called misery index—the sum of the unemployment and inflation rates—was 20% in the US, double its level today (because inflation is now very low). And corporate profits were very weak (today, they are very strong).
BusinessWeek was capturing widespread sentiment about the economic and market outlook. Nonetheless, stocks handily beat bonds over the 10 years starting in 1979.
As the ubiquitous legal disclosure says, past performance does not guarantee future returns. Indeed, performance often reverses sharply.
Between 1901 and the onset of the recent credit crisis, there have been 11 10-year rolling periods in which bonds beat stocks, all of them coinciding with the Great Depression or the stagflation of the 1970s. And after each and every one of them, stocks beat bonds for 10 years—on average, by 5.8%, as the Display below shows.
Because we are human, we all tend to expect the future to resemble the recent past—to become “anchored” in our recent experience. It takes guts to buck the trend. But at a September 1983 client conference, we cited good fundamental reasons in making “The Case for the 2,000 Dow.” The Dow Jones Industrial Average was then slightly below 1,300. It reached 2,000 in January 1987, about three-and-a-half years later.
Today, our median annual return projections for global and US stocks are about 8% over the next 10 years, far ahead of our projected 2% median return for 10-year Treasuries. At that rate, the Dow could hit 20,000 in five to 10 years. In the same time frame, the S&P 500, a more representative index, could hit 2,000. (It’s now around 1,300.)
Our projected stock returns may sound optimistic. They’re not. They are well below the long-term average for US and global equities, and are based on conservative assumptions about economic and market conditions.
Still, many pundits argue that stocks today are overpriced. My next blog post will assess stock valuations.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.
Seth J. Masters is Chief Investment Officer for Asset Allocation at AllianceBernstein and Chief Investment Officer of Bernstein Global Wealth Management, a unit of AllianceBernstein.
Tags: Businessweek, Chief Investment Officer, Corporate Profits, Credit Crisis, Different Reasons, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Fundamental Reasons, Future Returns, Great Depression, Inflation Rates, Legal Disclosure, Market Outlook, Misery Index, Oil Price Shock, stagflation, Stock Market Returns, Stock Returns, Stocks Bonds
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Dow 30 Trading Range Screen (Bespoke)
Monday, July 30th, 2012
This screen allows users to quickly identify which stocks in their portfolio have upside or downside momentum, and which ones may be getting overheated or deeply oversold. For the Dow, 16 of the 30 members are now in overbought territory, although just two (KO and WMT) are in extreme overbought territory. Just three Dow stocks are oversold — AA, CSCO and HPQ. Of these three, CSCO still has downside momentum, while AA has seen a pickup lately and may have more upside. Of the stocks in Neutral territory, American Express (AXP), Caterpillar (CAT) and IBM currently have the most upside momentum, while McDonald’s (MCD), Pfizer (PFE) and United Tech (UTX) have downside momentum.
Bespoke Premium Plus members have the ability to run their portfolios through a number of screens that we provide. One of these screens is our trading range screen, which allows clients to view where a large number of stocks are trading from an overbought/oversold perspective on one simple page. Below we have run the screen on the 30 stocks that make up the Dow Jones Industrial Average. For each stock, the light and dark green shading represents oversold territory, while the light and dark red shading represents overbought territory. The Neutral line represents the 50-day moving average. The dot for each stock shows where it is currently trading, while the tail shows where it was one week ago.
Become a Premium Plus member today to have Bespoke run your portfolio through our trading range screen!
Copyright © Bespoke Investment Group
Tags: American Express, Axp, Bespoke Investment Group, Caterpillar Cat, Csco, Dow 30, Dow Jones, Dow Jones Industrial Average, Dow Stocks, Hpq, Investment Group, Mcd, Momentum, Moving Average, Neutral Line, Neutral Territory, Pfe, Pfizer, Shading, United Tech, Wmt
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Sector Relative Strength – A Bullish Trend?
Friday, June 8th, 2012
The charts below show the relative strength of the ten S&P 500 sectors as well as the Dow Jones Transports relative to the S&P 500 over the last year. When the line is rising it indicates that the sector is outperforming the S&P 500, while a falling line indicates underperformance. We have also shaded each sector in red or green to indicate whether the sector has outperformed (green) or underperformed (red) the S&P 500 over the last year.
As shown in the chart, six sectors have outperformed the S&P 500 over the last year. Over the last twelve months, the S&P 500 has been led essentially by Consumer Discretionary, Technology, and Utilities, which have seen the greatest outperformance. On the downside, sectors that have been weighing on the market include Energy, Financials, Industrials, and Materials. Of these four sectors, the Materials sector has shown some signs of a bounce in recent days, but at this point we would need to see further outperformance before becoming more confident on the sector’s outlook.
With regards to the Dow Jones Transports, the sector has underperformed the S&P 500 over the last year, but in the last several weeks the sector’s relative strength has been slowly trending higher. This is no doubt due to the big drop in the price of oil, but for all you Dow theorists out there, it is a bullish trend.
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Copyright © Bespoke Investment Group
Tags: Amp, Bounce, Bullish Trend, Dow Jones, Downside, Industrials, Investment Group, Materials Sector, Nbsp, No Doubt, Outlook, Outperformance, Price Of Oil, Relative Strength, Sectors, Shaded Red, Signs, Theorists, Twelve Months
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Going Defensive With Dividend Funds
Tuesday, May 29th, 2012
While market volatility now looks closer to fair value than it did in early May, I still believe that investors should remain defensive. Stocks remain very much exposed to a potential disorderly Greek exit (“Grexit”) from the euro and any accompanying contagion.
One defensive play I particularly like: dividend paying stock funds, including those consisting of equities in traditionally volatile emerging markets.
As I write in my new Market Update piece, dividend stocks generally have been less volatile than the broader market, which can make them a good defensive choice.
Since 1992, the beta (a measure of the tendency of securities to move with the market at large) of the Dow Jones Select Dividend Index to the S&P 500 has been around 0.8. That means that for every 1% the market moves this index typically moves around 80 basis points (see how I calculated the beta in the chart below).
In the case of the Morningstar Dividend Yield Focus Index, the beta has historically been even lower, at around 0.7.
This historical pattern has continued during the most recent downturn. As of Thursday’s market close, the S&P 500 was off approximately 6% from its May peak, while the Dow Jones Select Dividend Index and the Morningstar Dividend Yield Focus Index were down 3% and 2% respectively.
Even in emerging markets, typically a more volatile sector of the market, dividend stocks tend to cushion the downside. For instance, the Dow Jones Emerging Markets Select Dividend Index has a beta of roughly 0.80 to the broader MSCI Emerging Market Index.
Given the ongoing uncertainty surrounding Greece and the overall European Union, near-term market volatility is likely to remain high and I continue to advocate that investors have a high allocation to high dividend equity funds. In particular, I like the iShares High Dividend Equity Fund (NYSEARCA: HDV), given its low beta and quality screen, and the iShares Emerging Markets Dividend Index Fund (NYSEARCA: DVYE). Another potential solution focusing on US equities is the iShares Dow Jones Select Dividend Index Fund (NYSEARCA: DVY).
Russ Koesterich, CFA is the iShares Global Chief Investment Strategist and a regular contributor to the iShares Blog. You can find more of his posts here.
Source: Bloomberg
The author is long HDV
Tags: Defensive Stocks, Dividend Funds, Dividend Paying Stock, Dividend Stocks, Dividend Yield, Dow Jones, Equity Fund, Equity Funds, ETF, ETFs, Focus Index, High Dividend, Index Fund, Ishares, Market Volatility, Morningstar, Msci Emerging Market, Msci Emerging Market Index, Quality Screen, S Market, Stock Funds, Volatile Sector
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The Connection Between Commodity Indices and Oil Prices
Monday, May 28th, 2012
by James Hamilton, Econbrowser
In my previous post I described a new research paper with University of Chicago Professor Cynthia Wu on the Effects of Index-Fund Investing on Commodity Futures Prices. Previously I discussed what we found for the prices of agricultural commodities. Here I review our findings about oil prices.
Part of the interest in a possible effect of commodity-index funds on oil prices comes from testimony before the U.S. Senate by hedge fund manager Michael Masters, in which he produced a provocative graph of oil prices against an estimate of the number of crude oil futures contracts held by commodity-index funds. We reproduced his methodology to update his graph below. The figure certainly seems to suggest a strong connection between these two series, particularly during 2008 and 2009.
Price of near crude oil contract (left scale) and number of crude oil contracts held by index traders as imputed by Masters’ method (right scale). Source: Hamilton and Wu (2012).
The CFTC does not release a direct estimate of index-fund holdings of crude oil contracts at the weekly frequency of data plotted above. Masters therefore used an indirect method based on CFTC-reported holdings by commodity-index funds of 3 particular agricultural commodities to construct the green line in the graph above. His reasoning was that most index funds follow one of two popular strategies, trying to track either the S&P-Goldman Sachs Commodity Index or the Dow Jones-UBS (formerly Dow Jones-AIG) Commodity Index. He noted that soybean oil, one of the 12 agricultural commodities for which CFTC does report a weekly estimate of index-fund positions, is included in the Dow Jones but not the Goldman strategy. Masters’ proposal was that, by using the CFTC estimate of holdings of soybean oil by index funds, and from the known weights that the Dow Jones strategy calls for holding soybean oil relative to crude oil, one could infer how many crude oil contracts were being held by funds following the Dow Jones strategy. Similarly, the Goldman strategy includes Kansas City wheat and feeder cattle, whereas the Dow Jones index does not, so either of these commodities (Masters used the average) could generate an implied holding of crude oil contracts by those trying to replicate the Goldman Sachs Commodity Index. Summing these two estimates produced the green line in the figure above. Thus this estimate of crude oil holdings is actually based on reported holdings in soybean oil, Kansas City wheat, and feeder cattle contracts.
This approach of imputing crude oil holdings from a few agricultural commodities has been sharply criticized by Irwin and Sanders (2011), who note that the implied estimates using Kansas City wheat often differ significantly from those based on feeder cattle. They also document that, for dates for which we have separate reasonable estimates of crude oil contracts held by commodity-index funds, the actual holdings differ substantially from the series plotted in the green line above. (See my discussion of Irwin and Sanders’ paper in Econbrowser last August).
In my new paper with Cynthia Wu, we demonstrate that Masters’ idea for imputing crude oil holdings from agricultural measures does not require finding a commodity that appears in one index but not the other. Algebraically, the method can be thought of as simply solving a system of two equations to determine two unknowns. In fact under Masters’ assumption, it would be possible to infer crude oil holdings from almost any two arbitrary agricultural commodities. The graph below shows what those inferences look like if one uses soybean oil plus any one of the indicated second commodities. The inferred series for crude oil holdings is quite sensitive to which agricultural series one uses. The figure also plots a regression method that we developed that makes use of all 12 commodities together, which can be viewed as a generalization of Masters’ averaging idea.
Holdings of crude oil contracts held by commodity-index traders imputed by (a) soybean oil and one other agricultural commodity; (b) Masters’ method; (c) regression method. Source: Hamilton and Wu (2012).
A recent paper by Stanford Professor Ken Singleton found that the 13-week change in Masters’ estimates of crude oil holdings can help forecast returns on crude oil futures contracts. Cynthia and I were able to reproduce this finding, though the level and 1-week change of the Masters series don’t have any predictive power.
Returning to the first figure above, the striking feature of the Masters series is that it collapses as the recession worsened in 2008 but began to rebound sharply before the recovery began, features that help give it apparent predictive power over the sample period that Singleton originally studied. Since Singleton’s paper was written, we now have 2 more years of data with which to see if the relation has true predictive power. We estimated the forecasting regression using a sample that ended at the same date as Singleton’s original analysis (January 12, 2010), and then used those regression estimates to try to forecast crude oil futures prices over January 17, 2010 to January 3, 2012. We found that in this out-of-sample exercise, the regression actually did 22% worse than one would have done if one simply used the naive forecast that futures prices would never change.
Interestingly, we found that Masters’ measure not only appeared to forecast changes in crude oil prices over the 2006-2009 period, but would equally appear to have been able to predict changes in the S&P500 stock price index over that period. However, this relation, too, turns out to perform worse out-of-sample than the naive prediction that stock prices will never change.
Our conclusion is that the correlation between 13-week changes in commodity-index holdings of agricultural futures contracts over 2006-2009 and other series such as changes in crude oil or stock prices is likely to just be a coincidence. Overall, we find very little support in the data for the claim that index buying exerted significant effect on commodity futures prices.
James D. Hamilton is Professor of Economics at the University of California, San Diego
Tags: Agricultural commodities, Aig Commodity Index, Cftc, Commodity Futures Prices, Commodity Index Funds, Commodity Indices, Crude Oil Futures, Dow Jones, Dow Jones Aig Commodity Index, Econbrowser, energy, Fund Positions, Futures Contracts, Goldman Sachs, Goldman Sachs Commodity Index, Hedge Fund Manager, Michael Masters, Oil Contracts, Scale Source, Soybean Oil, U S Senate
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