Copper is known as Doctor Copper because it is a metal used to create electricity; thus, demand for copper can be viewed as an indicator of global economic health. Well, ol’ Doc Copper has been rather sick for most of the past five years, while many emerging markets and other global markets also underperformed significantly during this time. The good news? It looks like Doc Copper is starting to suggest the health of the global economy could be on the mend.
The interesting thing about copper is it started to perk up right ahead of the U.S. election, with a huge 14-day win streak ending right after the election. Both candidates were talking about infrastructure spending and economic data was improving, but a conspiracy theorist might say that was a clue the market knew Donald Trump would win and that copper jumped ahead of the possibility of huge infrastructure spending. Whatever the exact reason, copper broke out of a nice symmetrical triangle late last year—to potentially signal the end of the downturn. A symmetrical triangle pattern can be recognized by two converging trendlines. It is generally a period of consolidation before the price moves beyond one of the trendlines.
On a longer-term basis, cooper broke above a multi-year bearish trendline late last year and then impressively pulled back and found support from this trendline. Since then it has re-accelerated higher, and this supports the likelihood of higher copper prices going forward.
Per Ryan Detrick, Senior Market Strategist, “Copper continues look great, and whether you believe higher copper prices are good for the global economy or not, you can’t deny the correlation between copper and emerging markets. In fact, The MSCI Emerging Markets Index is up more than 7% this year, nearly triple the S&P 500. Also, since copper has started to outperform other base metals and has turned higher, we’ve seen various global equity markets (I’m looking at you, Europe and Japan) start to do much better. Given how the U.S. was about the only market to do well in the past five years, it would be nice to see other global markets begin to outperform.”
For more on our thoughts about emerging markets, Japan, EAFE, and Europe, be sure to read our latest Weekly Market Commentary.