Mining and commodity stocks have been hit hard again the past month, with the TSX Venture composite now below support and flirting with the lows of last fall. Venture along with Chinese stocks have served as leading indicators for the demand cycle and global growth. The weakness in both over the past year (and even 4 years, still down since they peaked in 2007-08), bodes ill for broader markets that have recently vacillated in fits of liquidity levitation all on their own. The chart below shows the Venture composite top compared with the broader S&P 5oo price action below.
Dangerous for their investors, this follows a time when commodity and mining stocks have been the greatest story ever sold with a classic surge of sector specific funds, ETFs, products and managers in this space (reminiscent of the tech/telecom fervor of the late 90’s). All of which begs the question unfathomable to many today: could demand for commodities, their companies and shares have hit a cyclical peak with the consumer credit bubble in 2007?
Source: Cory Venable, CMT, Venable Park Investment Counsel Inc.
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Danielle, that’s very interesting. I don’t think I’ve ever heard that the Venture exchange is a leading indicator, except perhaps in the early stages of a real economic expansion (which everyone agrees we are not in). One thing is clear: market breadth is narrowing as even the most bullish managers I’ve seen are still in a flight to “quality.” It would seem that the “risk on” trade is not all that eager to actually take on much risk.