Copper-Oil Ratio Signals Drop in U.S. Stocks

Commodity prices are signaling this year’s rally in U.S. stocks will fade, according to Gina Martin Adams, a Wells Fargo & Co. strategist.

The CHART OF THE DAY shows how she drew this conclusion: by comparing the ratio between copper and crude-oil futures with the Standard & Poor’s 500 Index.

“When copper is accelerating faster than oil prices, stocks tend to do particularly well,” Martin Adams wrote two days ago in a report with a similar chart. “Much the opposite has been the case recently.”

From this year’s peak on Feb. 6, the ratio fell 9 percent through yesterday. The S&P 500 advanced 4.6 percent during the same period.

“The direction of copper is historically one of the best leading indicators” of global economic growth, the New York- based strategist wrote. This contributes to the copper-to-oil ratio’s usefulness as a stock-market gauge, the report said.

Price moves affecting the ratio can make or break earnings estimates, Martin Adams added. Her projection of $102 a share in S&P 500 profit this year assumes commodity costs will be little changed. Copper rose 11 percent for the year through yesterday, and oil rose 6.9 percent.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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