Many traders look to the copper futures market to provide clues about where stocks are headed. But as copper spiked on Wednesday after an earthquake struck off the coast of Chile, Wall Street was once again reminded that moves in commodities markets may not be quite as predictive of broader economic trends as one would hope.
On Tuesday night, an 8.2-magnitude earthquake hit the seabed off of the northern coast of Chile, resulting in six deaths and the evacuation of nearly a million people.
The news also spiked copper prices, as traders became concerned about supply given that Chile is the world's No. 1 producer of copper. But after hitting a three-week high in early Wednesday trading, the metal moderated as copper producers said they were not impacted by the quake.
Copper futures are closely watched by many, given the widespread theory that "Dr. Copper" provides a "check-up" on the health of the global economy. Copper indeed has a wide multitude of industrial functions, making copper usage a rough gauge of worldwide industrial demand. And copper and the S&P frequently move in the same direction.
However, over the last 12 months, stocks have soared and copper has tanked. This led many to warn that the action in copper was presenting a warning sign for stocks. But as copper's move off of the earthquake indicates, commodity prices quite often march to the beat of their own respective drums.
"For any sort of commodity, the end-all, be-all is that it's supply-and-demand-driven," said Brian Stutland, the CIO of Equity Armor Investments. "And supernatural events and surprises happen in the world that affect the supply-and-demand economics."