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In my column from Dec. 30 last year, entitled “Cattle report bullish for prices,” I wrote: “Moving forward, I am uncomfortable with the long side of most markets for the first quarter of 2023. With elevated interest rates on tap for the entire new year and slower economic growth predicted here in the United States and across the globe, it is not the type of environment to spawn bull markets. And as I mentioned above, a wild card for stocks and commodities is the COVID mess unfolding rapidly in China. I am uncomfortable being a bull until the first quarter of the new year has passed. I am being patient — and you should do the same.”
As it turned out, that was accurate advice because here are just a few events that unfolded in the first quarter of 2023. January was a ho-hum month, but February was one of the most bearish Februarys in 20 years for stocks and commodities.
And here are a few of the events that unfolded this month, the final month of the first quarter. Stocks as measured by the Dow Jones fell to a five-month low. Crude oil prices hit a 17-month low.
The CRB index that is to commodities as the Dow Jones is to stocks slumped to a two-year low. Livestock prices dropped to a three- to six-month low. A banking crisis in the United States and Europe unfolded.
And the Federal Reserve, after hiking rates another 25 basis points, the ninth hike in a year, hinted it may cut rates sooner than expected. Yes, the Fed is now considering lowering rates.
In December, my reluctance to be a bull toward commodities until the first quarter of 2023 was over was due to several fundamental forces that were hovering over the entire Big Four — stocks, bonds, currencies and commodities.
First and foremost was the Fed and most of the world’s central banks were pushing rates higher at the fastest pace in 40 years to fight inflation. Second, I was uncomfortable with the slow pace of the Chinese economy coming out of their COVID lockdown.
And finally, I was not entirely convinced the Fed would pivot anytime soon and begin cutting interest rates because inflation was stubbornly high. But now those bearish fundamentals are doing a 180.
It is the sudden rise of the banking crisis that has the Fed changing policy. From Business Insider, with a headline that reads “The Fed is done raising rates because policymakers can’t measure how much the bank crisis is tightening conditions, investment manager says,” KKM Financial CEO Jeff Kilburg said: “The Fed is done. It’s because they can’t measure what actually is the ripple effect — what is the tightening effect — of this banking situation.”
From one of my favorite research groups, AgResource: “As expected, the U.S. Central Bank raised interest rates by 0.25%, from 4.75% to 5%, with a long pause in additional rate hikes ahead. The FOMC signaled in its ‘dot plot’ that there may be one more hike in 2023, but cuts in 2024 and 2025 are expected with the Fed funds lending rate to fall to 3.25% in mid-2025.”
In the past year, the rapid and historic rise with interest rates has spawned unprecedented volatility with most all markets.
The New York Times recently posted an article about the Treasury bond market where rising and falling prices are shocking seasoned inventors. The first part of the article reads: “Wild swings in the Treasury market are unlike anything many investors today had seen.”
The article states: “‘What we have gone through, I have never seen it before,’ said George Goncalves, head of macro strategy at MUFG Securities. ‘It was off the charts.’”
Also off the charts and plagued by intense volatility few have ever seen is new crop soybean futures.
From Reuters News: “November soybean futures on the Chicago Board of Trade ended lower for a 13th consecutive session on Thursday, the longest such streak since at least 1973 for new-crop soybeans within their expiration year.”
Yes, while Treasury bonds have gone bonkers, new crop soybeans just did something not seen in 50 years.
Imagine.
Bond and soybean futures are moving around amid historic volatility that places both markets, in terms of madness here in March, “off the charts.”
Markets, and especially the futures markets, are notorious for predicting the future. That is a well-known fact.
Here in the first quarter of 2023, most all markets, stocks, bonds and commodities per se were pounded hard at some point in time. Most of the weakness unfolded in early March.
But in the final five to 10 days of the month as the first quarter was ending, markets of all kinds took off to the upside and ended the month on a very bullish note. In those final few days, a host of markets were so strong they were off the charts.