Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / Why Commodity ETFs Are Breaking Out While Stocks Stall
Transcript
- Lucas: The S&P 500 is basically flat over the last week, the Nasdaq is down about one and a half percent, and the VIX has jumped above 17. Meanwhile, commodity ETFs are quietly breaking out. That's a divergence worth talking about. Luna: When you say commodity ETFs—which ones specifically? Because there's a big difference between oil and agriculture. Lucas: Right, and that's exactly the nuance. I'm looking at the Invesco DB Agriculture Fund, ticker d b a, which tracks a basket of grains and softs like corn, soybeans, and sugar. That ETF is up roughly six percent over the last month. Then you have the VanEck Gold Miners ETF, G-D-X, which is up about eight percent over the same period. Luna: That's a notable move, especially when the broad market is losing ground. What's driving it? Lucas: I think there are three forces at play. First, the yield curve is steepening again—the ten-year minus two-year spread is now 39 basis points, up from 37 earlier in the week. That's not huge, but the direction matters. A steeper curve often signals that bond markets expect higher inflation or stronger growth down the road, and commodities benefit from both. Luna: Second force? Lucas: Geopolitical risk. The U.S.-Iran conflict is heating back up, and that directly affects energy prices, but it also creates broader uncertainty. When investors worry about supply disruptions, they tend to bid up hard assets like gold and agricultural commodities. Luna: And the third? Lucas: Jamie Dimon's warning on Monday that he wouldn't buy stocks or Treasuries at current prices. That kind of headline makes people rethink their equity exposure, and some of that money rotates into commodities as a hedge. Luna: Dimon's track record is worth noting, but he's been cautious for a while. Still, when the CEO of JPMorgan says he's not buying stocks, it moves sentiment. Lucas: Exactly. And look, commodities have been in a long-term consolidation after the post-pandemic spike in 2022. Many of these ETFs are now breaking out of multi-month ranges on higher volume. That's technically significant. Luna: Let's talk about the agriculture ETF specifically. DBA has a lot of corn and soybeans. What's the fundamental story there? Lucas: Weather is a big factor. We've had drought conditions in parts of the U.S. Midwest and in Brazil, which is the world's largest soybean exporter. That's put upward pressure on prices. Also, the USDA's latest supply report showed lower than expected stockpiles for corn. Luna: And on the gold miners side, GDX is up even more. Is that just a safe-haven play, or is there something else? Lucas: Gold itself is up about four percent this month, but the miners are leveraging that move. The GDX ETF includes companies like Newmont and Barrick Gold, and their operating leverage means that a small rise in gold prices can produce a bigger rise in earnings. Plus, input costs like energy and labor have stabilized somewhat, so margins are improving. Luna: So if I'm an investor looking at this divergence, what's the takeaway? Should I be shifting some of my portfolio into commodities? Lucas: I'm not making a blanket recommendation, but I think it's worth asking whether your portfolio has adequate commodity exposure. Many investors are still heavily weighted in tech and growth stocks, which are most sensitive to interest rates. Commodities tend to have a low correlation to equities, especially during periods of rising inflation or geopolitical stress. Luna: Speaking of portfolio decisions, it's worth noting that a lot of what we do here is made possible by listeners who chip in a few dollars a month. Lucas: Yeah, that's a good point. This show is completely ad-free, and it's funded entirely by the audience through buy me a coffee dot com slash fexingo. A small group of people already keeps the lights on, and that's why we can do deep dives like this without commercial interruptions. Luna: It's a simple way to support independent financial journalism. We appreciate everyone who's already part of that. Lucas: Alright, back to the commodity breakout. One thing I want to emphasize is the role of the producer price index. The latest PPI data showed a month-over-month increase of 0.3 percent, which was above expectations. That's a leading indicator that consumer inflation might not cool as quickly as hoped. Luna: And if the Fed sees that, they might hold rates higher for longer, which is usually bad for stocks but can be supportive for commodities because they're real assets. Lucas: Right. Real assets tend to hold their value when the purchasing power of currency is eroding. And with the ten-year Treasury yield at 4.55 percent, the real yield—after inflation—is still positive, but if inflation reaccelerates, that real yield could turn negative again. Luna: So you're saying this isn't just a short-term trade. There could be a structural case for commodities over the next year or two. Lucas: I think so. Look at the supply side. Mining companies have underinvested in new capacity for years. ESG pressures have made it harder to open new mines. Similarly, farmers in the U.S. are facing higher input costs and tighter margins, so they haven't expanded acreage aggressively. That creates a supply constraint that can persist even if demand softens. Luna: The demand side is interesting too. The infrastructure spending from the CHIPS Act and the Inflation Reduction Act is still rolling out, and that requires copper, steel, and other industrial metals. That's not going away. Lucas: Great point. And those metals aren't just in the industrial commodity ETFs. There are specific funds like the United States Copper Index Fund, ticker c p e r, that have also been moving higher. But the broad-based commodity funds like the Invesco DB Commodity Index Tracking Fund, ticker d b c, are up around three percent this month. Luna: So if someone wanted to add commodity exposure without picking individual sectors, DBC might be a one-ticket solution. Lucas: It's a diversified basket, but it's heavily weighted toward energy. You have to look under the hood. DBA and GDX give you more targeted exposure to agriculture and gold respectively. But for a generalist investor, a small allocation to a broad commodity ETF can make sense as a portfolio diversifier. Luna: Let's talk about the risks. Commodities can be incredibly volatile. In 2020, DBA dropped nearly 15 percent in a few months. Lucas: Volatility is the price of the diversification benefit. If you hold commodities, you have to be prepared for drawdowns. The key is to size the position so that you can hold through the swings. A five to ten percent allocation is typical for institutional portfolios. Luna: And timing matters. We're seeing a breakout now, but that doesn't mean it's too late. Sometimes breakouts are the start of a longer trend. Lucas: One final data point: the VVIX, which measures volatility of volatility, is at 96.43. That's elevated. Historically, when the VVIX is above 90, it suggests that options markets are pricing in potential tail risks. That's another reason to consider hedges like commodities. Luna: So to summarize: stocks are stalling, the VIX is rising, the yield curve is steepening, geopolitics are heating up, and commodity ETFs are breaking out. That's a configuration worth paying attention to. Lucas: Exactly. And it's not about predicting the next crisis. It's about recognizing when the market is sending signals that don't fit the consensus narrative. Right now, the consensus is still that inflation is cooling and the Fed will cut soon. Commodities are saying maybe not. Luna: We'll be watching how this plays out in the weeks ahead. For those who want to support the show, you know where to find us. Lucas: Thanks for listening, and we'll catch you next time.