Why Commodities Faltered Amid Stock Market Rout

Commodities ranging from oil to copper joined Monday’s global stock market freefall, extending recent weakness that may have foretold the current sell-off in equities.

Brent crude, the global oil benchmark, for September delivery fell as much as 2.1% to an eight-month low of $75.18 per barrel Monday morning before recovering somewhat in the afternoon. Brent has dropped about 14% in the past month.

Other commodities also declined Monday. Prices for copper, a key material used in construction and electronics, declined as much as 4% early in the day. Live cattle prices initially fell 2%, coffee prices dropped nearly 4%, and even gold—long considered a safe haven for investors in times of financial turbulence—fell more than 2% before regaining some ground later Monday.

Did Commodities Forecast a Fall?

Unlike stocks, which spent the first half of July at record highs before slipping, broad commodity markets have been headed lower for the last month. The S&P GSCI Index, a compilation of 24 different commodity prices, has plunged nearly 10% in that period. The index recorded just nine positive days in July.

Simply put, concern about weakening demand for the physical goods that drive the world’s economy—fuel, industrial metals, agricultural products—explains falling commodity prices in recent weeks.

Economists often look to commodity markets as a leading indicator of the broader global economy’s health. Worries about slowing global growth, and that the Federal Reserve may have waited too long to cut interest rates, now finally have rattled equity investors.

Not coincidentally, commodities began declining after the U.S. government released its June employment report on July 5. That report revealed a softening U.S. jobs market and included downward revisions to job growth from the previous two months.

Concerns about slowing global economic growth intensified Friday with the release of July’s U.S. employment data, which showed that the nation’s unemployment rate unexpectedly rose to its highest level in three years.