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The Real Test for Commodities Now

Asset allocation and re-balancing: that's the easiest explanation for the across-the-board weakness in commodities today. Out of commodities, more interest in stocks.

Today's factory order data, and especially yesterday's ISM data, clearly indicates the economy is improving. While that will help commodities, many of them have already had a big runup; large parts of the stock market have lagged behind.

This of course is not great news for commodity stocks, and indeed today we see materials, energy, and precious metal stocks lagging.

The test for commodities: whether this drop will be seen as a compelling entry point for bargain hunters.

GMon a tear. Don't tell me that Wall Street analysts don't matter. Have you seen what they've done to GM's stock since the quiet period ended last week? (See: Ford vs. GM Shares — Analysts Pick the Better Buy)

GM has been on a tear ever since December 28th, the end of the quiet period, when practically every analyst slapped a "buy" or equivalent recommendation on GM, accompanied by effusive praise for the "new" GM.

A good example is Deutsche Bank, which yesterday initiated coverage with a "buy" recommendation and a price target of $42. The analyst commentary was typical of what had been said in the prior week by other Wall Street firms:

1) GM costs are "now competitive;"

2) its products are "gaining increased traction;"

3) its core North American market is "solidly profitable."

With a drumbeat of effusive praise like this, it's no wonder the stock is on a tear. Since December 27, the stock has gone from roughly $34 to $37.66, a new high and well above the initial offerring price of $33 on November 18.

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