Considering commodities were on pace to set the worst January since 1975 at one point, down 14.3% by Jan. 20, the final monthly loss of just 5.2% is impressive. The S&P GSCI Total Return rebounded 10.6% with nine of the twenty four commodities posting gains for the month.
Does this mean commodities hit the bottom or that this is just a bounce in a much darker scenario? That probably depends on the oil supply decisions from Saudi Arabia, Russia and Iran, in addition to Chinese demand growth, the strength of the dollar and the weather. However, an examination of the historical annual performance of the S&P GSCI based on the direction of returns in January for single commodities and sectors gives hope that 2016 may be a positive year.
Again, nine of the twenty four commodities in the S&P GSCI were positive in January. Historically, there is a higher chance the year will end positively than negatively based on the first month’s performance for seven of those commodities. The most interesting statistic of the positive single commodities is that when gold has gained in January, the S&P GSCI has gained for the year almost 3 of every 4 times, or in 72% of the time. Gold gained 5.3% in January 2016, so there may be a 72% chance of a positive year in 2016 for the S&P GSCI, based on that historical data point.
What is more compelling is that of the fifteen negative commodities, only three have had the majority of years ending negatively based on their losing January months. For most of petroleum, the first month’s direction is only as good as a coin flip, but when Brent Crude loses, that has been a good thing in 63% of years for the S&P GSCI. Another namesake commodity, copper, that many watch as an indicator of economic health, lost 3.1% in January, but based on history, the S&P GSCI has gained in 68% of years where copper lost in the first month.
On average, there is a 59% chance of a positive year in 2016 for the S&P GSCI based on the number of times in history positive years have followed the direction of commodities this past January. The sectors tell the same story with a slightly higher chance, 64%, of a positive commodity year in 2016. Still, the outcome for the year is uncertain, especially since the direction of the January performance of the S&P GSCI itself, doesn’t say much. According to the historical data, there is only a slightly greater chance, 53%, of a negative year than a positive one in 2016.
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