Commodities seem to be very cheap measured to stocks. Going back to the 1980s when inflation was on fire, commodities were going through a huge upside cycle and peaked at a ratio of 2.25. No doubt that inflation was much more of a problem back then regarding the present day, but have the markets underestimated the underlying inflation? We think yes and commodities should pick up momentum in the coming years as the larger cycle is heading towards its peak in 2025. A rise in the commodity prices will mean additional inflation in the years to come, which also should add pressure to the stock prices, but it does have to be major panic sell-offs in the equity markets as well as it could just be a prolonged sideways consolidation, that will drag out too long for anybody's liking.
Be prepared for a swing up in the commodity vs. S&P 500 ratio in the coming years.
