Are commodities set for a pullback?

The markets have surged more than 5% the past week due to strong earnings report from financials to tech firms.  Commodities have also ridden the rally, surging in prices along with the broader market.  But as the more volatile and riskier sector, price rises of many commodities have been higher than the average.  That leads to a question of whether commodities are on the brink of a pullback.

A report from WSJ states:

But while growing willingness to take on risk bodes well for commodity markets, many industry observers feel the surge in prices is unfounded. The gains are built on a growing sense of optimism, rather than fundamental factors, they say, and will be short-lived.

And quite rightly so.  The interesting fact to note is that, focusing on oil, several oil servicers will be reporting its earnings this week.  Another story from WSJ points that, while crude oil has risen in prices, it wouldn’t necessarily translate easily to top line growth for the services.  So while the price of oil has risen from its crisis lows of $30 a barrel up to as high as 70-something, we can’t really expect servicers to be reporting positive or better than expected numbers.  That paired with what should be an expected correction in the market perhaps tells us that this sector is certainly one that is positioned for a decline.

Read the report HERE.

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