Wednesday, April 24, 2013

S&P 500 Revenues, Commodity Prices, & the Dollar (excerpt)

Previously, I’ve observed that S&P 500 revenues are highly correlated with both world industrial production and world exports. The same goes for these revenues and the CRB raw industrials spot price index. I am predicting that revenues will be up 5%-7% this year and next year.

If commodity prices weaken further, I will have to reassess this outlook, especially if the dollar continues to strengthen. There is a strong inverse correlation between the y/y percent changes in the CRB index and the JP Morgan trade-weight dollar index. A strong dollar tends to decrease the demand for many commodities that are priced in dollars. A strong dollar also depresses the value of profits earned abroad by US companies.

Today's Morning Briefing:The Pits and the Pendulum. (1) Dr. Copper isn’t the only economist in the commodity pits. (2) CRB spot price index less volatile. (3) World exports and production rose to record highs in January. (4) The relationship between S&P 500 revenues, commodity prices, and the dollar. (5) Germany’s Ifo dipping. (6) US capital goods orders slowing. (7) China not as weak as Dr. Copper suggests. (8) Underweight-rated Materials may be oversold. (9) Focus on overweight-rated Industrials, especially enablers of factory automation. (More for subscribers.)

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