Commodities & Energy Sector

The broad market took a significant step backward in April, as market jitters gripped investors, stoking fears of higher for longer monetary policy. However, our roundtable investor poll has demonstrated that the majority remain constructive on equities, and have plenty of cash ready to be invested, which could prolong the rally. Economic data is deteriorating while inflation is stubborn. However, so far, bad news is good news as many believe that a “Fed put” is still on.

Investors should prepare for economic data to weaken even as policy uncertainty and geopolitical risk skyrocket ahead of the US election.

Central banks are in a dilemma whether to prioritize supporting growth or bringing inflation back to target. This is unlikely to end well. Investors should be defensively positioned.

MacroQuant downgraded equities from neutral to underweight on a 1-to-3 month horizon. The model suggests increasing exposure to cash.

AI, EVs, and reshoring will lead to a massive surge in demand for electricity. Carbon-free, cheap, baseload nuclear energy stands to greatly benefit from these megatrends going forward.

The implication is that Israel chose not to escalate the risk of direct war with Iran. Hence we remain in our base-case “Minor War, Minor Oil Shock” scenario.

This year’s rise in commodity prices represents a blow-off rally rather than the start of a durable bull market. The global economy is heading for a recession. Stocks, commodities, and other risk assets are vulnerable.