The call it “Doctor Copper” because supposedly it has a Ph.D. in economics, with its uncanny ability to forecast the health of the U.S. economy and stock market. Astute observers have seen the stock market move in the same direction soon after copper prices make a move; is there a predictive capability there, or can it just be a coincidence?
It is inarguable that an economy that’s growing will, indeed, need more copper. It’s one the most widely used industrial metals, with plenty of applications in building construction, electronic product manufacturing, power generation and transmission, as well as the production of transportation vehicles and industrial machinery.
Copper is an essential component in the motors, brakes, radiators, connectors, wiring, and bearings used in cars and trucks, with the average car containing nearly a mile of copper wire; we also depend on the copper wiring found in appliances, heating and cooling systems, and telecommunications links.
And so, copper isn’t just for making pennies (actually, post-1982 pennies are manufactured with 97.5% zinc, but that’s a topic for a separate article…). The U.S. economy, and hence the equities markets, depends on copper, so it only makes sense that poorly performing copper should, sooner or later, be reflected in poorly performing stocks.
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In many cases, it’s sooner rather than later. Consider, for instance, that the day after Donald Trump was elected president on November 8, 2016, the spot price of copper shot up 3.5%. The following month, the stock market rallied 4.5%.
Or how about the time in July/August of 2017 when copper had a massive spike in price:
This was followed by an equally massive price spike in the S&P 500, Nasdaq, and Dow from September 2017 through January 2018. I’m not claiming that it always happens like this, but there are enough examples to make us consider whether there might actually be a correlation.
The next question, then, is whether Doctor Copper predicted the 20-percent-deep bear market in the major U.S. indexes that took place from October through December of 2018. I think the following copper chart answers that question handily:
The “coincidences” are starting to add up, it seems. The precipitous drop in copper went almost entirely unnoticed in the corporate media, which barely pays attention to precious metals like gold and silver, not to mention a so-called “base metal” like copper.
Metals aficionados, however, did notice the huge drop and hopefully took action in regard to their own portfolio allocations. They’ve also noticed that copper hasn’t staged a breakout in the fourth quarter of 2018 and early 2019 like gold and silver have done.
And so, while I’ll continue to monitor the prices of gold and silver, I’ll also be a “copper watcher” due to its consistent predictive abilities during the past several years at least. Sure, you can watch the S&P 500, and you can watch the VIX and the precious metals markets – but whatever you do, don’t miss your appointment with Doctor Copper.
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